Page 487 - ES 2020-21_Volume-1-2 [28-01-21]

114 Economic Survey 2020-21 Volume 2

Figure 18: Impact of RBI’s intervention in Forex market

Volatility in Indian ` FPI flows and Exchange rate
1.5
Cumulative change in USD INR Cumulative FPI flows (RHS)
6 4 20
1.0
Daily Per cent Change in US$/ ₹ -0.5 Per cent -2 -4 2 0 10 US$ Billion
15
0.5
5
0.0
0
-5
-1.0
-15
-1.5 -6 -8 -10
-20
1-Jan-20 1-Feb-20 1-Mar-20 1-Apr-20 1-May-20 1-Jun-20 1-Jul-20 1-Aug-20 1-Sep-20 1-Oct-20 1-Nov-20 1-Dec-20 1-Jan-21 1-Jan-20 15-Jan-20 29-Jan-20 12-Feb-20 26-Feb-20 11-Mar-20 25-Mar-20 8-Apr-20 22-Apr-20 6-May-20 20-May-20 3-Jun-20 17-Jun-20 1-Jul-20 15-Jul-20 29-Jul-20 12-Aug-20 26-Aug-20 9-Sep-20 23-Sep-20 7-Oct-20 21-Oct-20 4-Nov-20 18-Nov-20 2-Dec-20 16-Dec-20 30-Dec-20 13-Jan-21

Source: RBI
Foreign Exchange Reserves
3.30 While improved current account balance has been a key factor for reserve accretion in H1 of
2020-21, robust capital flows, particularly FDI and FPI, in subsequent months largely drove foreign
exchange reserves to an all-time high of US$ 586.1 billion as on January 8, 2021, covering about
18 months of imports (Figure 19). As at end-September 2020, India is the fifth largest foreign exchange
reserves holder among all countries of the world after China, Japan, Switzerland and Russia. India’s
international financial liabilities are 210.7 per cent of foreign exchange reserves as at end-September
2020 as compared with 229.7 per cent as at end-March 2020.

Figure 19: Sources of Foreign Exchange Reserves and Import Cover

FCA Gold RTP SDR Import Cover (RHS)
700 20
18
600
16
500 14
US$ Billion 400 12 No. of months

10
300
8
200 6
4
100
2
0 0
Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3
2018-19 2019-20 2020-21

Source: Reserve Bank of India (RBI).
Note: (i) The forex reserves indicated above are as at end date of the quarter.
(ii) The reserve cover of imports for Q3 2020-21 is provisional and based on annualised imports of Q2 of 2020-21. It will
change once quarterly BoP is released.

3.31 This forex reserve accretion entailed a concomitant release of domestic liquidity and aided
the large-scale government borrowing without entailing any implications for monetary policy as