The Economic Survey today said India has the fourth largest foreign exchange reserves, which helped the nation to tide over global financial crisis.
The country’s foreign exchange reserves touched $297.3 billion in December 2010 from $279.1 billion in March.
“It needs to be acknowledged that foreign exchange reserves have helped insulate India from the worst impact of the crisis,” it said.
Unlike many Western nations, India was relatively less affected by the global financial meltdown in 2008-09 that had pushed many advanced economies into recession.
The country’s foreign exchange reserves stood at $297.3 billion at the end of December 2010. At the same time, the forex of Japan and Russia stood at $1.12 trillion and $479.4 billion, respectively. Neighbouring China’s foreign exchange reserves stood at $2.45 trillion in June 2010.
According to the Survey, the country’s reserves mainly comprise portfolio investment (FII), “which are more vulnerable to sudden stops and reversals and borrowings from abroad’’.
India’s foreign exchange reserves have increased over the years from just $5.8 billion in March 1991.
“The reserves reached a peak of $314.6 billion at May-end 2008 before declining to $252 billion at the end of March 2009.
“The decline in reserves in 2008-09 was inter-alia a fallout of the global crisis and strengthening of the US dollar vis-a-vis other international currencies,” the Survey said.
About the idea of having a multilateral option of a pre-arranged credit line, the Survey noted such an option is necessary but is not sufficient.
“... (This is because) foreign investors often view the size of foreign exchange reserves as a key input in taking investment decisions,” it added.