Despite two consecutive weeks of increases in May, India’s foreign currency reserves began to decline. Forex reserves in the nation remain at over $600 billion. In the week ending June 3, 2022, all of the key components in the reserves basket fell except for the IMF’s reserve position. It was the foreign currency assets that had the most impact on the company’s success.
E-invoicing for companies is a step in the right direction, according to experts, and the CBIC’s declaration that it is obligatory for businesses is a first step toward making it necessary for all GST taxpayers.
Tax authorities would benefit from having more data on e-invoices by capping them at Rs.10 crore rather than at the current Rs.20 crore level. According to Deloitte India partner MS Mani, “the gradual decrease of the e-invoicing threshold suggests that e-invoicing would eventually become essential for all categories of GST taxpayers.”
For the week ending July 15, India’s foreign currency reserves fell by USD 7.541 billion to USD 572.712 billion as the Reserve Bank continues to intervene in the market to contain rupee depreciation. The Reserve Bank of India (RBI) said that reserves fell by USD 8.062 billion in the week ending July 8 to USD 580.252 billion.
Moreover, gold reserves fell by $74 million in the week ended June 3, from $40.917 billion to $40.843 billion. A total of $18.410 billion, a decrease of $28 million from the previous week’s total of $18.438 billion in Special Drawing Rights (SDRs). In this article, we will discuss what are the main reasons behind the Indian Forex reserves decline and how this problem can be overcome.
Indian Forex reserves – What is the Current Situation?
The Russian invasion of Ukraine is only one of several worldwide causes that have contributed to India’s declining currency reserves. As reported by NDTV, Indian currency reserves have fallen by USD 34 billion, or 5.4%, since February 24.
Central banks throughout the globe have taken action to address the problem of inflation caused by supply chain concerns and rises in commodity prices, particularly those induced by the conflict in Ukraine. The increased inflation has also dramatic effect on the financial market. Nowadays, those who are involved in the biggest financial market – Forex, are searching for the best Forex brokers in Asian countries in order to get the most out of the trading process regardless of increasing inflation. While other currencies like the Indian rupee have depreciated, the dollar has risen as a result of the US Federal Reserve raising interest rates by 50 bps, its greatest increase in two decades.
There has been a dramatic shift in India’s foreign currency reserves this year owing to economic difficulties. However, the nation is still one of the 12 main economies that the United States considers to be a key trade partner.
On June 10, the US Treasury Department issued its latest report on the fiscal and foreign exchange strategies of significant trading partners for India. In terms of the US dollar, the rupee has been more volatile, although it has done better than its counterparts so far.
Indian currency practices and macroeconomic policies are being closely monitored by the US Treasury Department, according to the ‘Monitoring List’ of key trade partners.
In fact, the Indian rupee’s value is rising in relation to other currencies, prompting the members to grasp the nuances and bring up the subject of the Indian rupee.
There will be no downfall. It is, in fact, making its way back to where it came from. Whenever there is a spike in volatility, the Reserve Bank of India (RBI) is ready to intervene. The Reserve Bank of India’s actions are not so much aimed at stabilizing the Indian rupee’s value as they are to allow it to go its own path.
What should be done?
In order to overcome the problem of the Forex reserves decline, the Indian government should take into consideration several things and factors. Large and complicated central banks may benefit from better governance by delegating operational decision-making authority to investment committees rather than keeping it all in the hands of the central bank’s board of directors. Faster issue solving and more strategic decision-making may be achieved if the investment committee had a greater involvement.
The ability to act in favor of the national or union currency should be supported and maintained by the government, as should public trust in the rules governing these areas. In times of crisis or when access to borrowing is restricted, the government should have foreign currency liquidity on hand to absorb shocks and therefore decrease external vulnerability. The government should also provide market confidence that a nation can fulfill its external commitments.
