Sources of Variation in Foreign Exchange Reserves in India during April-September 2023

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Date: 26th Dec, 2023 Source: Reserve Bank of India Country: India Original Source

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The Reserve Bank of India (RBI) has released the balance of payments (BoP) data for April-September 2023, which shows an increase in foreign exchange reserves during this period. The sources of the variation in foreign exchange reserves during this period are current account balance, capital account (net), and valuation change. The capital account shows a net inflow of $44.5 billion, largely driven by foreign investment and banking capital. The current account balance reflected a deficit of $17.5 billion. The valuation change resulted in a loss of $17.7 billion due to the appreciation of the US dollar against major currencies and higher bond yields. On a balance of payments basis, foreign exchange reserves increased by $27.0 billion, a significant improvement from the depletion of $25.8 billion in the same period last year. Overall, the foreign exchange reserves in nominal terms increased by $9.3 billion.

Earlier today, the Reserve Bank of India released balance of payments (BoP) data for July-September 2023 on its website (www.rbi.org.in). On the basis of these data, the sources of variation in foreign exchange reserves during April-September 2023 are detailed below.

Sources of Variation in Foreign Exchange Reserves: April-September 2023

During April-September 2023, there was an increase in the foreign exchange reserves, the sources of which are set out in Table 1.

Table 1: Sources of Variation in Foreign Exchange Reserves*
(US$ Billion)
Items			April-September 2023	April-September 2022
I.		Current Account Balance	-17.5	-48.9
II.		Capital Account (net) (a to f)	44.5	23.1
	a.	Foreign Investment (i+ii)	25.4	11.5
		(i) Foreign Direct Investment (FDI)	4.8	19.6
		(ii) Portfolio Investment	20.7	-8.1
		of which:
		Foreign Institutional Investment (FII)	21.4	-7.8
		ADR/GDR	0.0	0.0
	b.	Banking Capital	17.3	10.6
		of which: NRI Deposits	5.4	2.8
	c.	Short term credit	-1.5	5.4
	d.	External Assistance	2.3	2.3
	e.	External Commercial Borrowings	2.8	-3.0
	f.	Other items in capital account	-1.9	-3.7
III.		Valuation change	-17.7	-48.9
		Total (I+II+III) @ Increase in reserves (+) / Decrease in reserves (-)	9.3	-74.6
*: Based on the old format of BoP which may differ from the new format (BPM6) in the treatment of transfers under the current account and ADRs/ GDRs under portfolio investment. @: Difference, if any, is due to rounding off. Note: ‘Other items in capital account’ apart from ‘Errors and Omissions’ includes SDR allocation, leads and lags in exports, funds held abroad, advances received pending issue of shares under FDI and capital receipts not included elsewhere and rupee denominated debt.

On a balance of payments basis (i.e., excluding valuation effects) foreign exchange reserves increased by US$ 27.0 billion during April-September 2023 as against a depletion of US$ 25.8 billion during April-September 2022. Foreign exchange reserves in nominal terms (including valuation effects) increased by US$ 9.3 billion during April-September 2023 as against a decrease of US$ 74.6 billion in the corresponding period of the preceding year (Table 2).

Table 2: Comparative Position of Variation in Reserves
(US$ Billion)
Items		April-September 2023	April-September 2022
1	Change in Foreign Exchange Reserves (Including Valuation Effects)	9.3	-74.6
2	Valuation Effects [Gain (+)/Loss (-)]	-17.7	-48.9
3	Change in Foreign Exchange Reserves on BoP basis (i.e., Excluding Valuation Effects)	27.0	-25.8
Note: Increase in reserves (+)/Decrease in reserves (-). Difference, if any, is due to rounding off.

The valuation loss, reflecting the appreciation of the US dollar against major currencies and higher bond yields, amounted to US$ 17.7 billion during April-September 2023 as compared with a valuation loss of US$ 48.9 billion during April-September 2022.

(Yogesh Dayal)
Chief General Manager

Press Release: 2023-2024/1542

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Summary:

The Reserve Bank of India (RBI) has released the balance of payments (BoP) data for July-September 2023, providing insights into the sources of variation in foreign exchange reserves during the April-September 2023 period.

According to the data, the foreign exchange reserves increased by USD 9.3 billion during the reporting period, contrasting with a decrease of USD 74.6 billion in the corresponding period of the preceding year. This increase was driven by a net capital account surplus of USD 44.5 billion, which more than offset the current account balance of USD -17.5 billion.

The net capital account surplus was primarily driven by foreign investment, which increased by USD 25.4 billion, accounting for a significant portion of the overall increase in foreign exchange reserves. Within foreign investment, foreign direct investment (FDI) contributed USD 4.8 billion, while portfolio investment added USD 20.7 billion. Bank capital transfers and external assistance also contributed to the net capital account surplus.

The valuation effect, which reflects the impact of changes in exchange rates and bond yields on foreign exchange reserves, was a major factor in the decline in foreign exchange reserves during the corresponding period of the preceding year. In contrast, the valuation effect during the April-September 2023 period amounted to a loss of USD 17.7 billion, which was smaller than the valuation loss of USD 48.9 billion in the same period of the preceding year.

Overall, the data suggests that the increase in foreign exchange reserves during the April-September 2023 period was driven by a combination of factors, including a net capital account surplus and a smaller valuation loss compared to the same period of the preceding year.

Reserve Bank of India

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