The weak rupee and decline in gold prices have taken a toll on the country’s foreign exchange reserves. These fell 4.6 per cent in the first three months of fiscal 2013-14 to stand at $280.2 billion as of July 12, 2013. This translates into a 5.5 per cent erosion in the country’s forex reserves since the start of this calendar year.
India’s foreign exchange deposits comprise currencies, such as the US dollar, Japanese yen, British pound and the euro, besides gold and special drawing rights (SDRs) from the International Monetary Fund.
Currency weakness
Of the total reserves, $252.1 billion is held in the form of foreign currency assets.
The strength of the dollar and the relative weakness of most major currencies against the greenback resulted in a 4.5 per cent decline in India’s foreign currency assets from end-March 2013, wiping out $11.9 billion.
The British pound sterling lost 5.5 per cent against the dollar and the Japanese yen fell by 12.3 per cent during this period, though the euro was trading flat against the American currency.
India holds 7.7 per cent of its forex reserves as gold. In this segment, $4.1 billion in value has been erased since end-March 2013. This was primarily on account of a 19.5 per cent fall in international gold prices in a three-month span as the precious metal lost some of its lustre.
Position in IMF
India was able to get some small benefits from a rise in the value of the SDRs — supplementary foreign exchange reserve assets maintained by the IMF — but its reserve position in the IMF decreased by $138.3 million.
The decline in foreign exchange reserves implies that India’s import cover stands at under seven months, if one is to consider average monthly imports of $41 billion in 2011-12.
India’s foreign exchange reserves touched an all-time high of $321 billion on February 9, 2011. They had scaled the $300-billion level in early 2008, but declined after the global financial crisis.
The value of the country’s foreign exchange assets has fallen since 2011 and was in the range of $286 million to $297 million prior to the latest decline.