India’s Forex reserves surge to lifetime high of $670.86 billion

India’s foreign exchange (Forex) reserves rose for the third-consecutive week to touch a new lifetime high of $670.86 billion as of July 19, according to the latest data released by the RBI on Friday.

The reserves surged by $4 billion during the week after increasing by a cumulative of $14.9 billion in the preceding two weeks.

An increase in the Forex reserves reflects strong fundamentals of the economy and gives the RBI more headroom to stabilise the rupee when it turns volatile.

A strong Forex kitty enables the RBI to intervene in the spot and forward currency markets by releasing more dollars to prevent the rupee from going into a free fall.

Conversely, a declining Forex kitty leaves the RBI less space to intervene in the market to prop up the rupee.

RBI Governor Shaktikanta Das had recently said that India’s external sector remains resilient and overall the central bank remains confident of meeting the country’s external financing requirements comfortably.

India’s Current Account Deficit (CAD) declined to $23.2 billion (0.7 per cent of GDP) during 2023-24 from $67.0 billion (2.0 per cent of GDP) during the previous year due to a lower merchandise trade deficit which reflects a robust external balance position, according to RBI data released on June 24 this year.

The RBI data also showed that India’s CAD recorded a surplus of $5.7 billion (0.6 per cent of GDP) in the January-March quarter (Q4) of 2023-24 as against a deficit of $8.7 billion (1.0 per cent of GDP) in the preceding October-December quarter of 2023-24.

German SMEs eye India: Germany’s small and medium-sized enterprises (SMEs) are increasingly looking to expand their supply chains to India, while the US is losing popularity as a business location, the German Press Agency (dpa) reported.

Some 40 per cent of German SMEs are planning to restructure their supply chains, according to the survey conducted by DZ Bank made available to the dpa.

Particularly larger companies with an annual turnover of $54.3 million are considering expanding trade relations with India, it said. Some 15 percent of German SMEs plan to turn to India to expand their supply chains over the next five years, up from some 10 per cent in 2022, according to the survey. The result indicates that India has become “the most interesting non-European country for SMEs realigning their supply chains”, said DZ Bank, which surveyed more than 1,000 managing directors and decision-makers.

Many companies have recognised the strong growth momentum in the world’s most populous country, it said.

China is also gaining popularity again among SMEs, according to the representative survey conducted between 5th March and 2nd April.

“The fact that India and also South-East Asia are becoming more important is mainly due to the companies looking to diversify their supply chains amid growing political uncertainty,” DZ Bank analyst Claus Niegsch said.

The United States is losing importance after attracting German businesses for years with low energy costs and massive subsidies, SMEs are now starting to turn their back on the country, according to the survey, which found that only some 12 percent plan to focus on the US market in the future, down from 15 percent in 2022.

Some 9 per cent are looking to withdraw their operations from the US entirely, the survey found.

Separately, India is likely to ease restrictions on Chinese investment in non-sensitive sectors like solar panels and battery manufacturing where New Delhi lacks expertise and which hinders domestic manufacturing, two government sources said.

The government plans to free up sectors to Chinese investment that it deems less sensitive from a security point of view, said one of the officials, who did not want to named.

The plans mark a first step in improving economic ties between the two neighbors, a relationship that worsened after clashes in the remote Himalayan border in 2020, after which India tightened scrutiny on investments from Chinese companies.

The non-critical sectors “would be decided on a case-to-case basis,” the second official said, but curbs on Chinese investments in electronics and telecom would continue.

The prime minister’s office, foreign, finance, home and trade ministries did not respond to requests for comments

Top government officials have been open to reviewing their stance against Chinese investment in the last few months as foreign investment has fallen to 17-year lows.

Finance Minister Nirmala Sitharaman’s support of better economic ties with China on Tuesday was the first such public comment made by a ranking cabinet minister in the Modi government.