India's forex reserves rise 3.3%, covering 12 months of imports

The Dollar Business Bureau

According to RBI's half-yearly report, India's foreign exchange reserves increased from $360.2 billion at the end of March, 2016 to $372 billion at the end of September 2016, an improvement of 3.3%, leading to the import cover to increase to 12 months from 10.9 months in March 2016.

Among the FCAs (Foreign Currency Assets), gold, SDRs (Special Drawing Rights) and RTP (Reserve Tranche Position), the major contribution in forex reserves comes from FCA. FCA reserves rose from $336 billion (March 2016) to $346.7 billion (September 2016), a 3.2% increase.

Of the total FCA reserve, $229 billion was invested in securities, $95.7 billion was deposited with other central banks (BIS and the IMF) and remaining $22.0 billion was deposited with overseas branches of commercial banks.

The ratio of short-term debt to foreign exchange reserves declined from 23.1% (March 2016) to 21.8% (September 2016). The ratio of volatile capital flows to reserves also slipped from 87.1% (March 2016) to 85.8% (September 2016).

In September 2016, India had international liabilities in excess of its international asset holdings, to the extent of $367.6 billion. The country’s net negative international investment position has expanded considerably from the 2016 March-end figure of $361.2 billion.

The gold reserves of RBI stand at 557.77 tonnes, of which 265.49 tonnes is safely deposited overseas with Bank of England and Bank of International Settlements. Gold forms 5.75% of the total forex reserves.

Since the 2000s, there has been a steady rise in reserves worldwide. This has often lead IMF to question excessive hoarding of forex. According to a report published by IMF on adequacy of foreign reserves in 2011, an exorbitantly high import cover is costly for a nation and leads to diminished returns.