India’s foreign exchange (forex) reserves fell by $30.5 billion since the West Asia conflict started late February, as the Reserve Bank of India (RBI) intervened to curb volatility in the forex market with the rupee dropping over 4 per cent against the dollar in March.
Total reserves fell $10.28 billion to $688.05 billion during the week ended March 27 on the back of a decline in foreign currency assets and gold reserves, latest data released by the RBI showed.
Total reserves hit an all-time high of $728.5 billion for the week ended February 27.
Foreign currency assets declined by $6.62 billion, whereas gold reserves fell by $3.66 billion during the reported week. The special drawing rights (SDRs) were up by $17 million at $18.64 billion during the same week. India’s reserve position with the International Monetary Fund (IMF) was down by $17 million at $4.81 billion.
For the full financial year 2025-26 (FY26), the total reserves increased by $22.72 billion. This was due to rise in gold reserves as foreign currency assets (FCA) — the main component of total reserves — fell almost $14 billion in FY26. In FY25, FCA fell by $5.6 billion.
FCA, expressed in dollar terms, reflects the impact of appreciation or depreciation in non-US currencies, such as the euro, pound sterling, and yen, held as part of foreign exchange reserves.
“The increase in spot forex reserves has been driven mainly by higher gold valuation,” Sreejith Balasubramanian, senior economist – fixed income, Bandhan AMC, said in a note last week.
“From FY24 to FY26, share of FCA has fallen by 8 percentage points (ppts) as gold held increased by approximately 50 per cent year-on-year (Y-o-Y) each year. Most of this rise is driven by higher prices as volume increased only by 7 per cent in FY25, not a very sharp rise versus previous years,” the note said.
It added that FCA could ease further if geopolitics and capital flow pressure the currency and RBI’s foreign exchange intervention continues, or the dollar strengthens.
While the headline number of foreign exchange reserves – at $688 billion – looks healthy and provides an import cover for 11 months, but when the dollar deficit in the RBI’s forward book is considered, the cover falls to nine months.
