Sources of Variation in Foreign Exchange Reserves: 2022-23

Strategic Insights -

The Reserve Bank of India recently released its balance of payments (BoP) data for January-March 2023, shedding light on the changes in foreign exchange reserves during 2022-23. According to these data, the foreign exchange reserves saw a decline, with the sources of this variation detailed in Table 1. The current account balance contributed to a decline of $67.1 billion in the reserves, while the capital account (net) saw a value of $57.9 billion, primarily driven by foreign investment and banking capital. The valuation change, primarily reflecting the appreciation of the US dollar against major currencies, resulted in a valuation loss of $19.7 billion.

Key Takeaways:

  • Current Account Balance: The current account balance was a major contributor to the decline in foreign exchange reserves, with a net outflow of $67.1 billion in 2022-23, compared to $38.8 billion in 2021-22.
  • Capital Account (net): The capital account contributed a net value of $57.9 billion, driven by foreign investment and banking capital. This is a decrease from $86.3 billion in 2021-22.
  • Investment: Foreign direct investment (FDI) stood at $28.0 billion, while portfolio investment stood at $-5.2 billion, and foreign institutional investment (FII) at $-4.8 billion.
  • Valuation Change: The valuation change resulted in a valuation loss of $19.7 billion, primarily due to the appreciation of the US dollar against major currencies.
  • Reserve Decline: The net decline in foreign exchange reserves was $28.9 billion, as compared to an increase of $30.3 billion in the preceding year.
  • Balance of Payments (BoP) Basis: On a BoP basis, excluding valuation effects, foreign exchange reserves decreased by $9.1 billion during 2022-23, as against an accretion of $47.5 billion during 2021-22.

Statistics:

  • Foreign Exchange Reserves Decline: The net decline in foreign exchange reserves was $28.9 billion in 2022-23.
  • Current Account Balance: The current account balance contributed a net outflow of $67.1 billion in 2022-23.
  • Capital Account (net): The capital account contributed a net value of $57.9 billion in 2022-23.
  • Valuation Loss: The valuation loss due to the appreciation of the US dollar against major currencies was $19.7 billion.
  • Investment: Foreign direct investment (FDI) stood at $28.0 billion, while portfolio investment stood at $-5.2 billion.

Sources:

  • Reserve Bank of India, "Balance of Payments: 2022-23," www.rbi.org.in.
  • Reserve Bank of India, "Press Release: 2023-2024/484."