India’s forex reserves have now crossed the $ 500 billion mark, according to the data released by the Reserve Bank of India (RBI).
The reserves rose to $ 501.7 billion, marking an increase of $ 8.22 billion in a week. Reserves had surged $3.43 billion to a fresh all-time high of $493.48 billion in the week-ended May 29.
At the current level, India has enough reserves to cover imports for over a year.
Indian Forex reserves consist of foreign currency assets, gold reserves, special drawing rights and reserves in IMF. Of these, foreign currency assets are the biggest component followed by gold.
RBI, from time to time, intervenes in forex markets to balance the volatility in currency markets. It either buys dollars to release rupee into the market or sell dollars to support rupee. Also, as mentioned earlier, forex reserves are handy if the economy plunges into a crisis.
According to rating agency CARE, forex reserves continue to register higher levels every week reflecting the strong external situation of the economy due to lower trade deficit and higher capital inflows on account of foreign investment.
There have been theories that India should use its forex reserves for infrastructure financing. Some experts have opined that the country doesn’t need to keep high level of forex reserves idle but can use part of it for other development activities, mainly to give a push to infrastructure.