Recent data released by the Reserve Bank of India shows that India's foreign exchange reserves have reached its highest level.
This can obviously be considered an achievement for India and why is it basically important today? In this article we are going to talk about this topic.
Forex Reserves Hit All-Time High of $704.89 Billion
First of all here if you see why this topic is important in the exam. If you see the exam in your UPSC and IAS exam then you will see this topic linked there, in whatever is there in GS paper 3, there is a topic of your foreign reserve which is very important. So you can see this whole topic linked to the Indian economy. Firstly it is important for your economy and secondly it is also important for your exam and even if you are not preparing for the exam, if you have this kind of information then obviously it makes you an informed decision maker, so don't forget to share the article with your friends so that your other friends can also become an informed decision maker.
You can say that this is being considered a very big achievement for the Reserve Bank of India and the Government of India, so first of all we talked about this news here and will talk about it further. If you look at this data, this data is so big that if you calculate the entire economy of Pakistan, then India alone has three times more foreign reserves than the entire economy of Pakistan, so you can guess how big a difference you will see in the economy of both the countries.
Data
So first of all let's talk about the figures, what do the figures released by RBI tell us. Talking about foreign exchange reserves, we have definitely seen that India's foreign exchange reserves have reached $ 704.89 billion which is the highest level ever. This is being considered a historical level and if we look at the last one week, India's foreign exchange reserves have seen an increase of $ 12.5 billion which is the biggest weekly increase in history so far. This is also a new record made in India.
Apart from this, if we compare it with other countries of the world, then India's foreign exchange reserves have reached the fourth position in the world as compared to other countries. India has the fourth largest foreign exchange reserves in the world and we have already seen this figure of Pakistan. It is about three times more than the GDP, so you can consider it important.
Now if you talk about the structure of our foreign reserve, you can see many components of our foreign reserve. We will discuss about those components. We will talk about it in detail and understand what things are happening at present. If you look at the important points, first of all the foreign currency assets and the gold reserves, i.e. the gold reserves, both of them have seen an increase. On the other hand, the SDR ( Special Drawing Rights) which is with the IMF, which is operated by the IMF, has also seen an increase in India, while on the other hand, our reserve portioning which is with the IMS is a little less. But the overall good thing for India is that India's overall foreign exchange reserves have increased.
Apart from this, if we talk about future prospects, there is a bank named Bank of American Securities. It has estimated that India's foreign exchange reserves can reach around $ 750 billion by 2026, so this is a very big achievement which India will achieve around 2026 and the most important role in this is going to be played by the Indian stock market, as its report shows that you can see that a lot of investment is being made in the bond market of India and in the stock market of India and as a result of this investment, India's foreign exchange reserves are also going to increase, so these were some of the data on which we talked.
Now we will discuss the figures from 2001 to 2024. Around 2003, we achieved the first major milestone in December 2003 when the value of our foreign exchange reserves crossed 100 billion dollars. So we achieved this figure in 2003. After that in 2007 we crossed 200 billion dollars. The very next year in 2008 we achieved the figure of 300 billion dollars but then the financial crisis started from there and then it took some time for India to recover. That is why our next figure is 400. That billion dollars was ours in 2017. You did not see much growth between 2008 and 2017 but the special thing was that there was no decline here, this thing was also good for us, that is why we had 400 billion dollars in 2017. In 2020 we crossed the 500 billion dollar mark, in 2021 we crossed 600 billion dollar and in 2024 we crossed 700 billion dollar, so overall this has been the history of India, this has been India's journey, in terms of foreign exchange, in terms of foreign reserves, here we have seen the entire history of India, the history that starts from 2003, now it is continuously increasing rapidly.
What is the foreign exchange reserve?
Now the question arises here that what is the foreign exchange reserve that we are talking about, so it is also important to understand foreign reserves. Now if you look around the world, you will find a lot of globalization. Globalization in the world means that the economy of a country is very much connected to the economy of another country. Now when the economy is connected, their currency is also connected to each other and due to the currency being connected, whatever currency wallet you have is also very much connected to any country. It is important to manage it and the work of managing the currency is done through your foreign reserves, that is why the central bank of any country keeps foreign reserves in its country so that if there is any threat to its currency, if there is a balance of payment crisis, then that balance of payment crisis can be dealt with like the crisis that our country saw around 1991 and if we talk about that crisis, then the biggest problem we faced during that crisis was that we did not have foreign reserves. So now in India you will see foreign reserves at a large level. So having a central bank can include bonds, treasury bills and other government securities in reserve assets in foreign currencies.
Between 1990 and 1991, India faced an economic crisis in which the biggest problem was the balance of payment crisis where our foreign exchange reserves had reduced drastically, after which India faced a big crisis. Then the need for foreign exchange reserves was felt and a committee was formed. Its name was 'High Level Balance of Payment Committee' which included important economists like C Rangarajan and YV Reddy.
Then the committee gave a report and recommended that it is mandatory for India to always have foreign exchange reserves for 12 months of import needs. This condition was kept. we are seeing a continuous increase in foreign exchange reserves, so here you can say overall that there is no target for foreign exchange reserves in India, the more foreign exchange reserves we have, the better the situation can be considered for us. No target has been set for us here but it should not be less than that.
Apart from this, if you see what things are included in India's foreign exchange reserves, it includes your foreign currency assets such as your bonds, treasury bills and other government securities. It includes your gold reserves. It includes your SDR (Special Drawing Rights.)
Now let us understand a little about Special Drawing Rights because it is an important concept and it is given a lot of importance in the economy. So if you talk about SDR, SDR is created by IMF through the International Monetary Fund. Now SDR is basically yours, you can say that it works as a special currency but it is not a currency, like it is your Euro, it is Rupee, it is Ramani, like it is a currency linked to a country, but SDR is not your currency, it is not linked to any country, no country officially issues it, it is the job of IMF to create it, so what IMF does is that it basically creates some such units and SDR distributors are given to all the countries based on the quota of the countries that are contributing to the IMF. Now it is important for us to understand how SDR is used.
Now suppose you run a country. You are the governor of the central bank of that country. You are the governor of the central bank of a country and a financial crisis comes in your country. Now it is important to deal with that financial crisis. You have these options. That is, you can use the reserves present in the foreign exchange reserves and use that money to buy the currency of another country and through this you can get relief from the financial crisis or balance of payment crisis in your country. But if you use your own currency then the result will be that your rupee or your currency will become weaker, so now you have the option of using SDR.
What is SDR? Every country has a different quota of SDR. If you go to any of your neighbouring countries and say that I offer you 1000 SDRs and in exchange of these 1000 SDRs, give me whatever currency you have, the same value, then what will that country do? That country will take SDR from you and whatever currency you have, it will give you whatever physical currency it has. If you are given that, then you will not have to use your currency and your economy will also be saved, so this is one benefit of your SDR, the entire system started by the IMF also includes SDR. Then the reserve portion that you keep with the International Monetary Fund is also included in it, the things that we keep in reserve with it are also included in it, so this is the overall foreign exchange reserve.
Importance of increasing forex reserves?
Now let's talk about, if the foreign exchange reserves increase then what is its importance, what benefits do we get from it, if you look at it then first of all the situation becomes very comfortable for the government, so if you have more foreign exchange. If the reserves are present, it means that your central bank can easily deal with any financial crisis, if there is a rupee depreciation crisis or balance of payment crisis and then they can easily deal with that crisis because they have that facility. If there is a central bank and a government, the situation becomes a little better. The crisis can be easily managed. If a payment imbalance arises on any economic front, then you have a cushion to deal with this situation. It also contributes to the appreciation of the rupee. Your foreign exchange reserves can also be used to strengthen the rupee against the dollar.
If your rupee is weakening, you can use it to strengthen the rupee against the dollar. By withdrawing a little bit of dollar, you can use it to increase the supply of dollar in your market, due to which the position of the dollar will weaken a little and the Indian rupee will increase in comparison. Apart from this, You are investors, their confidence in your market also gets strengthened.
Investors also know that if there is any crisis in your economy, your government can deal with that crisis by using its foreign exchange reserves and your country will not default. A crisis is going to happen, but your country is not going to end, so in such a situation, the confidence of investors remains strong.
Investors invest money in India and the economy remains even stronger. Now think about it and see if you There are countries like Sri Lanka, there are countries like Pakistan where you do not have any foreign exchange reserves, where whatever their economy is, obviously any country, any investor, will not go there to invest because the investors.
The biggest condition for investing is whether the place where you are investing is stable or not, whether the country will sink or not, then this is a big problem to be seen here, so you have to manage it accordingly. Foreign exchange reserves are very important for us. Now finally, this topic ends here.
Anil Paal
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