How India has used forex reserves to tide over global uncertainties since 1991, Pg15

Key Highlights:

• India's forex reserves stood at $709.76 billion as of March 13, 2026, covering approximately 12 months of imports.
• In March 2026, foreign investors withdrew Rs 1.04 lakh crore ($11 billion) from the Indian market.
• During the 1991 BoP crisis, India's forex reserves were critically low, covering only 2-3 weeks of imports.
• The rupee weakened by 2.9% to 93.72 following the escalation of the West Asia conflict on February 28.

Detailed Insights:

• Adequate foreign exchange reserves act as a buffer during crises, providing strength to a country's macroeconomic fundamentals.
• The RBI intervenes by selling forex reserves to manage rupee volatility caused by FPI outflows.
• The 1991 BoP crisis was triggered by a sharp increase in oil prices in August 1990, leading to massive capital outflows.
• During the Asian financial crisis, the RBI intervened to stabilize the currency and tighten liquidity, with forex reserves falling by $2-3 billion in 1998.
• The global financial crisis in 2008 led to a decline in India's forex reserves from $315 billion to $250-$255 billion as the RBI intervened.
• The taper tantrum in 2013, triggered by the US Federal Reserve's hint at reducing quantitative easing, caused the rupee to depreciate from 55 to 68 per dollar.

Key Concepts Involved:

• Forex Reserves: A country's holdings of foreign currencies and other assets used to back its liabilities.
• Current Account Deficit (CAD): The shortfall when a country's total imports of goods, services, and transfers is greater than its exports.
• Foreign Portfolio Investment (FPI): Investments made by foreign investors in the financial assets of a country.
• Balance of Payments (BoP): A statement of all transactions made between entities in one country and the rest of the world over a defined period of time.