India’s Forex Reserve: Its Strength In Times Of Pandemic

Relevance: GS-2: Indian Economy and issues relating to Planning, Mobilization of Resources, Growth, Development and Employment.

Key phrases: RBI, FOREX

Why in news?

Foreign exchange reserves are assets held on reserve by a central bank in foreign currencies, which can include bonds, treasury bills and other government securities.
It is used to back its liabilities – like the native currency issued and also reserves deposited by financial institutions or the government with the central bank

Supporting and maintaining confidence in the policies for monetary and exchange rate management.
Provides the capacity to intervene in support of the national or union currency.
Limits external vulnerability by maintaining foreign currency liquidity to absorb shocks during times of crisis or when access to borrowing is curtailed.
The rising forex reserves give comfort to the government and the RBI in managing India’s external and internal financial issues.
Countries with a floating exchange rate system use forex reserves to keep the value of their currency lower than the US Dollar
Appreciation in Rupee – The rising foreign exchange reserves has helped the rupee to strengthen against the dollar

As much as 64 per cent of the foreign currency reserves is held in the securities like Treasury bills of foreign countries, mainly the US.
India also held 653.01 tonnes of gold as of March 2020, with 360.71 tonnes being held overseas
From facing BOP in 1991 to having a reserve of 630 billion dollars –4th highest in world

Fall in crude oil prices has brought down the oil import bill, saving precious foreign exchange.
Dollar outflow from overseas remittances and foreign travels have fallen steeply.
Rise in investment by foreign portfolio investors and increased foreign direct investments-sharp jump with cut in corporate tax
Conscious policies followed by government

Initiatives like AatmaNirbhar Bharat, in which India has to be made a self-reliant nation so that India does not have to import things that India can produce.
Schemes like Duty Exemption Scheme, Remission of Duty or Taxes on Export Product (RoDTEP), Nirvik (Niryat Rin Vikas Yojana) scheme to improve exports
India is one of the top countries that attracted the highest amount of Foreign Direct Investment, thereby improving India’s foreign exchange reserves

Government wants to utilize the excess forex for developmental purposes but It should be only if RBI and other stakeholders agree
Export faces problems due to red tape, high turnaround time at ports and this should be tackled at priority