Economic Survey 2024-2025 shows improved Forex Reserves

The Economic Survey 2024-2025, tabled in Parliament by Finance Minister Nirmala Sitharaman, highlights a significant improvement in India’s foreign exchange ( forex ) reserves, underscoring the nation’s resilience amid global economic uncertainties.

The survey reveals that India’s forex reserves surged to USD 704.9 billion in September 2024 before moderating to USD 634.6 billion as of January 3, 2025. This places India among the top four global holders of forex reserves, trailing only China, Japan, and Switzerland.

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The increase in reserves is attributed to stable capital flows, a balance of payments (BoP) surplus, and valuation gains. In the first half of FY25, forex reserves rose by USD 59.4 billion, driven by a BoP surplus of USD 23.9 billion and a valuation gain of USD 35.5 billion. The reserves are sufficient to cover approximately 90% of India’s external debt of USD 711.8 billion as of September 2024, providing a robust buffer against external vulnerabilities.

Foreign currency assets ( FCA ), which constitute the bulk of India’s forex reserves, played a pivotal role in strengthening the reserve position. The import cover, a key indicator of external sector stability, stood at 10.9 months as of December 2024, significantly surpassing the International Monetary Fund’s (IMF) recommended three-month import cover for emerging economies. This enhances India’s ability to withstand external shocks and maintain economic stability.

However, the survey also notes volatility in foreign portfolio investment ( FPI ) flows, particularly in the second half of 2024, due to global geopolitical tensions and monetary policy developments. Net FPI inflows slowed to USD 10.6 billion in April–December 2024, down from USD 31.7 billion during the same period in 2023. Despite this, the inclusion of India’s sovereign government securities (G-secs) in the JP Morgan Emerging Market Bond Index has spurred heightened activity in the debt segment of FPIs, contributing to capital inflows.

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The Economic Survey emphasizes that India’s strong forex reserves position reflects prudent macroeconomic management and a resilient external sector. With reserves providing an import cover of over ten months and covering 90% of external debt, India is well-equipped to navigate global economic challenges. This robust reserve position not only safeguards against external vulnerabilities but also reinforces investor confidence in the Indian economy.

As India continues to strengthen its economic fundamentals, the improved forex reserves serve as a testament to the nation’s ability to maintain stability and foster growth in an increasingly uncertain global environment.

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