India has collected more than 500 billion Dollars which is considered as the world’s fifth-largest foreign exchange reservoirs, and it is seen as a good move in this present situation.
According to analysts Anubhuti Sahay, chief India economist at Standard Chartered Plc in Mumbai, the reservoirs are provided with padded support by a rare current account surplus in the first quarter, inflows in foreign direct investment and into the local stock market, including into Reliance industries which is India’s largest company by revenue.
A strong buffer gives relief to foreign investors and credit rating companies as they believe that the government can meet its obligations despite market volatility. According to the international monetary fund, the level of reservoirs is enough to cover the imports. The reservoir as considered as the fifth largest after China, Japan, Switzerland, Russia.
India has to import goods and machinery in order to keep the industrial working during this amid lockdown. The lower commodity prices and weak global demand had negatively affected remittance inflows and service exports. After the outflows in March, foreign investment in Indian markets is increased due to the sale of stakes in blue-chip companies. The net FDI has increased up to 51% of total capital flows. It was stated by the chief India economist at Deutsche Bank in Mumbai that they are expecting nearly 65% of total capital inflows in FY21.
The data released by the central bank shows that India’s external debt rose to $558.5 billion as of March 2020 from $474.4 billion five years ago and the debt in foreign exchange reservoirs have risen to 85.5% from 72% in 2015.
Fitch Ratings Ltd wrote in a recent report that the government is planning to open more too foreign capital but the foreign investors’ tolerance has to be checked because of the large debt.