New Delhi: The Reserve Bank of India (RBI) recently issued a report indicating that India's foreign exchange reserves, measured against its import cover (based on the balance of payments), have reached a level of 11.2 months.
The RBI's update, released on Tuesday, sheds light on India's foreign exchange reserves, its ability to cover imports, and its International Investment Position (IIP), offering a detailed view of the nation's financial health as of June 30, 2024.
This latest data shows a slight decrease in India's import cover, dropping by one month from the 11.3-month cover recorded at the end of March 2024.
Import cover is a key metric that indicates the duration of time a country's current foreign exchange reserves can sustain its import needs, acting as a critical measure of a nation's ability to withstand external economic challenges.
The report states, "At the end of June 2024, India's foreign exchange reserves cover of imports (based on balance of payments) stood at 11.2 months (11.3 months at end-March 2024)."
Further analysis reveals a rise in the proportion of short-term debt to reserves. By March 2024, short-term debt (considering its original maturity) made up 19.7 per cent of reserves. However, by the end of June, this figure increased to 20.3 per cent, showing a marginal increase in the share of short-term obligations relative to the country's reserves.
Moreover, the report points out an increase in the ratio of volatile capital flows, which encompasses the accumulation of portfolio inflows and outstanding short-term debt, to reserves. This ratio rose from 69.8 per cent at the end of March to 70.1 per cent at the end of June, indicating a minor increase in the share of short-term liabilities in relation to the country's reserves.
The RBI's report also delves into changes in India's International Investment Position (IIP), which is a comprehensive record of the country's external financial assets and liabilities.
Between the end of June 2023 and the end of June 2024, India's external assets grew by USD 108.4 billion, while its external liabilities increased by USD 97.7 billion over the same period.
This growth in assets and liabilities underscores India's ongoing international engagements and financial activities.
In summary, these updates offer a glimpse into India's external economic status and underscore the importance of the RBI's data on the IIP, along with metrics like import cover and debt-to-reserves ratio, in evaluating India's economic stability amidst global financial fluctuations.
