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India is now the fourth country in the world to have over $700 billion in foreign reserves, following China, Japan, and Switzerland.
- India's reserves can cover 11.9 months of imports, well above the general norm of six-months.
About Forex (Foreign Exchange) Reserve
- It comprises of different assets that are held by a central bank.
- In India, the RBI Act of 1934 contains the enabling provisions for the Reserve Bank of India (RBI) to act as the custodian of forex reserve, and manage reserves within the defined objectives.
- Components of Reserve (in descending order as per their value)-
- Foreign Currency Assets (FCA): It is valued in currencies other than the country's own
- Gold reserves
- Special Drawing Rights: A reserve asset provided by International Monetary Fund (IMF).
- It's value is based on a mix of five major currencies- the US dollar, euro, Chinese renminbi, Japanese yen, and British pound sterling.
- Reserve Tranche Position (RTP): It is equal to the member’s quota less the IMF’s holdings of the member’s currency in account.
- Key deriving factor behind rise in reserve: Foreign Direct Investment (FDI) and Foreign Portfolio Investment (FPI), Remittances, etc.
Significance/Need of Forex Reserve
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