Context:

India’s foreign exchange reserves surpassed Russia’s to become the world’s fourth-largest to $580.3 billion by edging out Russia’s $580.1 billion pile.

Forex Reserve status

• Reasons for the surge: India’s reserves, enough to cover roughly 18 months of imports because of:
  • rare current-account surplus
  • rising inflows into the local stock market
  • foreign direct investment
• Signifi cance: It will help in a government meeting its debt obligations.
• Rank: India comes at 4th place after China which has the largest reserves, followed by Japan and Switzerland.

Foreign Currency Assets (FCAs)

• Foreign exchange reserves: These are assets denominated in a foreign currency that is held by a central bank.
• Regulation: Reserve Bank of India Act and the Foreign Exchange Management Act, 1999 set the legal provisions for governing the foreign exchange reserves.
• Significance: Foreign exchange reserves of India act as a cushion against rupee volatility once global interest rates start rising.
• Categories: The Foreign exchange reserves of India consist of four categories.
  • Foreign Currency Assets
  • Gold
  • Special Drawing Rights(SDRs)
  • Reserve Tranche Position.