Importance of Increasing Foreign Exchange Reserves: UPSC Daily Important Topic | 23 January 2022

Importance of Increasing Foreign Exchange Reserves

•The government is in a comfortable position if there are rising forex reserves and the RBI in managing India’s external and internal financial issues at a time of major contraction (23.9%) in economic growth.

•It Assist the government in meeting its foreign exchange needs and external debt obligations.

•Appreciation in Rupee – The rising foreign exchange reserves has helped the rupee to strengthen against the dollar.

•Crisis Management: Rising Forex Reserve serves as a cushion in the event of a Balance of Payment crisis on the economic front. It is enough to cover the import bill of the country for a year. Know more about the Balance of Payment on the linked page.

•Confidence in the Market: Forex Reserves will provide a level of confidence to markets and investors that a country can meet its external obligations.