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India Becomes World's 4th Largest Forex Reserve Holder
India's forex reserves surge to a record $785.7 billion, overtaking Russia to become the world's fourth largest holder, driven by RBI's FCNR(B) scheme.
Key Highlights:
- India's forex reserves rose by $44.9 billion to a record $785.7 billion in the week ended September 4.
- India overtook Russia to rank fourth globally, behind China, Japan and Switzerland.
- The surge follows RBI's FCNR(B) deposit scheme, which drove $73 billion in inflows in under 11 weeks.
- RBI announced a Rs 1 lakh crore OMO bond sale in three tranches to absorb excess banking system liquidity.
- The FCNR(B) window's closure was advanced from September 30 to August 31 after early success.
A Historic Jump in Forex Rankings
India has climbed to become the world's fourth largest holder of foreign exchange reserves, dislodging Russia from that position after a record surge in dollar inflows triggered by the Reserve Bank of India's foreign currency non-resident (bank) deposits scheme. According to data compiled by Bloomberg, India's forex reserves increased by $44.9 billion to touch a record $785.7 billion during the week ended September 4, placing the country behind only China, Japan and Switzerland in global rankings.
What's Driving the Surge
The increase came even as the gold reserves component within India's overall forex kitty declined by $2.59 billion to $113.81 billion during the same week, reflecting a drop in gold prices. This divergence, a sharp rise in overall reserves despite falling gold value, underscores just how significant the dollar inflows through the FCNR(B) scheme have been in reshaping the composition and scale of India's reserves in recent months.
Why This Milestone Matters for the Economy
A rising forex reserve position is typically read as a signal of underlying economic strength, but its more immediate practical value lies in the flexibility it gives the RBI to manage currency volatility. A larger reserve cushion gives the central bank greater headroom to intervene in spot and forward currency markets, releasing dollars as needed to prevent sharp depreciation of the rupee during periods of external pressure. In effect, India's improved global standing on this metric translates directly into stronger tools for domestic currency management, rather than being a purely symbolic achievement.
