India’s foreign exchange reserve situation remains sound with total reserves increasing by $68 billion in 2023-24, the highest rise among major foreign exchange reserves-holding countries, the Economic Survey has noted.
The rupee has also been one of the least volatile currencies among its emerging market peers in FY24.
In the future, robust foreign inflows and comfortable trade deficits are expected to keep the rupee within a comfortable range, the survey added.
“FER stood at $653.7 billion on June 21, 2024, enough to cover more than 10 months of imports projected for FY25 and more than 98 per cent of total external debt outstanding at the end of March 2024,” it said.
A comfortable FER is important for the economy as it acts as a cushion for the domestic economy and insulates it from global spillovers. The reserves provide liquidity, ensuring the country can meet its external obligations.
“A moderation in the CAD (current account deficit) amidst large capital inflows enabled the addition of foreign exchange reserves in FY24,” the survey said. In FY24, the US dollar gained against virtually every major peer and the rupee, too, came under depreciation pressure, it observed. However, the rupee was one of the least volatile major currencies.
“Further, it exhibited the lowest volatility in FY24 compared to the previous years. An estimation of volatility using the coefficient of variation (CV) highlights that CV was 0.58 during FY24, much lower than in the past years,” it said.
The relative stability of the rupee, despite a stronger US dollar and elevated US treasury yields, reflects the strength of the Indian economy’s sound macroeconomic fundamentals, financial stability, and improvements in external position.
India ranks fourth globally in terms of FER after China, Japan and Switzerland.