India's Forex Reserves Surge To Record $651.5 Bn

India's foreign exchange reserves soared to a historic high of USD 651.5 billion as of 31 May, marking an increase of USD 4.83 billion from the previous week, according to Reserve Bank of India (RBI) Governor Shaktikanta Das in his recent monetary policy statement. 

On 24 May, the country's forex reserves were reported at USD 646.6 billion. Governor Das expressed confidence in the central bank's ability to comfortably meet the country’s external financing needs. "Touching a new milestone, India’s foreign exchange reserves reached a historic high of USD 651.5 billion as on 31 May 2024. India’s external sector remains resilient, and key external vulnerability indicators continue to improve. Overall, we remain confident of meeting our external financing requirements comfortably," he stated. 

During the post-policy press conference, Governor Das addressed concerns about inflows from JP Morgan’s bond index inclusion, assuring that the central bank is well-prepared to manage them. "The RBI has a number of instruments. We have managed it in the past. We will manage it this time also. So, no worries on that score," he said. 

The inclusion is expected to bring around USD 25 billion in passive inflows into the government bond market.
Das highlighted that in 2023, India retained its position as the most attractive destination for greenfield foreign direct investment (FDI) in the Asia-Pacific region. While gross FDI remained robust in 2023-24, net FDI saw a moderation. 

Additionally, external commercial borrowings (ECBs) and non-resident deposits recorded higher net inflows compared to the previous year. 

Foreign portfolio investment (FPI) flows surged in 2023-24, with net FPI inflows reaching USD 41.6 billion. However, since the beginning of 2024-25, foreign portfolio investors have turned net sellers in the domestic market, resulting in net outflows of USD 5 billion as of 5 June. 

In September 2023, JP Morgan announced it would include government papers issued by the RBI under the Fully Accessible Route (FAR) in its widely tracked GBI-EM index. The inclusion process will start on 28 June and be phased over a 10-month period, with a 1 per cent weight added each month until 31 March 2025.