India’s forex reserves to surge beyond $750 billion by March 2025

India’s foreign exchange reserves (FER) may see another year of robust accretion in FY25, supported by overseas inflows into the equity and bond markets, remittances by Indians employed overseas, and NRI deposits, say economists.

With FER vaulting over the $700 billion milestone to an all-time high of $704.885 billion in the week ended September 27, 2024, the reserves are seen swelling to $745-750 billion by March 2025.

The country’s FER had jumped by $68 billion in FY24, the highest rise among major foreign exchange reserves-holding countries, according to the Economic Survey. Since March-end 2024, the FER has risen by $ 58.466 billion up to September 27, 2024.

In its outlook for the quarter ended September, HSBC, in a report, said: “...Portfolio inflows are likely to be strong at USD 21 billion, with equity inflows rising back up, and bond inflows remaining resilient (led largely by the ongoing JP Morgan bond index inclusion).

“On the back of these inflows, India’s BoP (balance of payments) surplus is likely to go back to double-digits. FER are expected to rise quickly, not just led by a stronger BoP surplus, but also revaluation gains.”

Manoranjan Sharma, Chief Economist, Infomerics Ratings, noted that the surging reserves have been facilitated by overseas inflows into India’s stocks and bonds.

“India’s forex reserves have been on an upswing since 2013, when India was part of the “fragile five”... and foreign investors exited because of weak macroeconomic fundamentals. Since then, an effective check of the inflationary spiral, accelerated economic growth, squeezing of fiscal and current account deficits, and abiding faith in the India growth story have led to a surge of foreign funds,” he said.

Sharma emphasised that the healthy reserves strengthen buffers against contingent external risks in a volatile international market, giving the RBI considerably more flexibility and leeway in currency management.

This welcome development would also have a salubrious impact on the current account deficit (CAD) and strengthen the import cover well beyond the norm of six months.

In the latest monthly bulletin, published on September 20, RBI staffers noted that as of September 6, 2024, India’s foreign exchange reserves had risen to an all-time high of US$689.2 billion, equivalent to more than 12 months of imports for 2023-24 and more than 103 per cent of total external debt outstanding at end-March 2024.

As on September 6, India accumulated US$66.8 billion in 2024 so far (as on September 6), the second highest among major foreign exchange reserves holding countries, per the bulletin.

In his bi-monthly monetary policy statement in August, Governor Shaktikanta Das said: “Overall, India’s external sector remains resilient as key indicators continue to improve. We remain confident of meeting our external financing requirements comfortably. “