GS 3 – ECONOMY
India’s foreign exchange (forex) reserves fell by $1.88 billion to $623.983 billion as of January 17, 2025, following a sharper decline of $8.714 billion the previous week. The Reserve Bank of India (RBI) cites market interventions and asset valuation changes as reasons for the drop.
About Forex Reserves
- Definition: Assets held by a central bank in foreign currencies to stabilize the economy.
- Purpose: Maintain currency stability, support international trade, and manage foreign debt.
- Components:
- Foreign Currency Assets: $533.133 billion (largest share).
- Gold Reserves: Increased to $68.947 billion.
- Special Drawing Rights (SDRs): Rose to $17.782 billion.
- IMF Reserve Position: Decreased to $4.122 billion.
Factors Influencing Reserves
- RBI Interventions: To stabilize the rupee.
- Valuation Changes: Due to currency exchange rate fluctuations.
- Global Economic Conditions: Stability or instability in major economies.
Recent Trends
- Peak reserves: $704.885 billion (September 2024).
- Decline raises concerns about economic pressures and the need for vigilant monitoring.
Implications of Declining Reserves
- Currency Stability: Potential rupee volatility.
- Inflation Control: Challenges in managing inflation.
- Investor Confidence: May weaken foreign investment sentiment.
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Mains Question:
“Discuss the recent decline in India’s foreign exchange reserves, highlighting the factors influencing this trend and its implications for the economy.”
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