India has sufficient forex reserves to finance CAD, manage rupee volatility, says Economic Survey 2023

India has sufficient forex reserves to finance its current account deficit (CAD), India's Economic Survey 2022-23 said ahead of Budget 2023. The annual document prepared by the Ministry of Finance was tabled in Parliament by Finance Minister Nirmala Sitharaman on Tuesday.

The forex reserves are adequate “to intervene in the forex market to manage volatility in the Indian rupee,” the survey noted while spelling out state of the Indian economy in the current fiscal and giving a sneak peek into the future. 

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Forex reserves as of December 2022 end stood at USD 562.72 billion, accounting for 9.3 months of imports. The ratio of external debt to GDP is at a comfortable level of 19.2 per cent as of end-September 2022, the Economic survey revealed.

Forex reserves are large enough to finance close to a year’s imports is clear evidence of India’s economic resilience amidst a global polycrisis, as per the 414-page long Economic Survey 2022-23.

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As per the BIS Triennial Central Bank Survey 2022, the US dollar is the dominant vehicle currency accounting for 88 per cent of the global forex turnover in terms of foreign exchange market turnover (daily averages). In this, the INR (Indian Rupee) accounted for 1.6 per cent.

“If the INR turnover rises to equal the share of non-US, non-Euro currencies in global forex turnover of 4 per cent, Indian Rupee could be regarded as an international currency, reflecting India’s position in the global economy,” the survey said.

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What is Forex Reserves?

Foreign exchange reserves are assets held on reserve by a central bank in foreign currencies. These reserves are used to back liabilities and influence monetary policy. It includes any foreign money held by a central bank, such as the U.S. Federal Reserve Bank.