Forex reserves rise to an all-time high of $462 billion in January

Amidst the economic downturn that India faces currently, there is also some good news for the economy. The country’s foreign exchange reserves have risen for the 17th straight week to hit an all-time high of $462.15 billion for the week ended January 17. As the government presents its budget for 2020-21 on February 1, it will be keenly watched by foreign portfolio investors and global businesses as they make their calls for future investment and additional inflows to India.

Led by strong foreign direct investment, foreign portfolio investments and relatively stable global crude oil prices over the last year (except for temporary spikes), foreign exchange reserves in the country shot up $33 billion since the week ended September 20, when Finance Minister Nirmala Sitharaman announced a sharp cut in corporate tax rates.

While a sudden spike in global crude oil price (earlier this month) following the growing geopolitical tension between the US and Iran posed a potential threat, a de-escalation in tension eased the prices within a week.

According to the weekly data released by the Reserve Bank of India, forex reserves rose by $940 million in the week ended January 17, 2020. The reserves have grown sharply over the last four months. It has grown week after week over the past 17weeks.

The FM announcing a cut in corporate tax rates is further termed as one that had propelled investments into the Indian economy.

While FPIs invested a net of $19.4 billion into the Indian capital markets in 2019, the FDI equity inflows in the first nine months of the calendar 2019 amounted to $36.97 billion.

This continued inflow of funds by foreign investors despite a slowdown in economic growth has fuelled the rise in forex reserves.

The rise in forex reserves over the last four months has also come as a breather for the country’s rising external debt, which rose significantly over the last couple of years from $485 billion in June 2017 to $557 billion in June 2019.