• India's forex reserves have dropped by $10.746 billion due to escalating geopolitical tensions and foreign institutional investors' selling.
• Gold reserves also decreased by $98 million, but gold's share in forex has surged more than 209% since 2018.
• This development is reminiscent of the 1991 economic crisis when India's forex reserves depleted significantly.
• Despite the recent drop, projected growth and strengthening of forex reserves are expected to boost India's economic growth.

India's foreign exchange (forex) reserves have experienced a significant drop of $10.746 billion, bringing the total to $690.43 billion for the week ending October 11, 2024. This data was released by the Reserve Bank of India (RBI) on Friday, October 18, 2024.

The decline in forex reserves is attributed to escalating geopolitical tensions and selling by foreign institutional investors (FII). This drop in forex reserves comes after the reserves had reached an all-time high of $704.885 billion at the end of September 2024.

In the week prior to the recent drop, the forex had decreased by $3.709 billion to $701.176 billion. This indicates a trend of declining forex reserves over the past few weeks. Despite these decreases, industry experts project growth in India's forex reserves.

A strong forex reserve is expected to boost India's economic growth trajectory by strengthening its international position, attracting foreign investments, and promoting domestic trade and industry.

Gold Reserves and Forex Reserves

In addition to the drop in forex reserves, gold reserves also saw a decrease of $98 million, bringing the total to $65.658 billion for the week ending October 11. The Special Drawing Rights (SDRs) were down by $86 million to $18.339 billion, and the country's reserve position with the International Monetary Fund (IMF) decreased by $20 million to $4.333 billion.

Interestingly, the share of gold in the country's forex has surged more than 209 per cent since 2018. On Friday, gold prices continued their strong upward momentum, with a sharp rise of Rs 500 in MCX, taking the price to Rs 77,600, supported by Comex gold surging above $2,710.

For 2024, gold has already delivered impressive returns of over 22 per cent, and on a Diwali-to-Diwali basis, returns have reached nearly 30 per cent. This makes gold one of the standout performers for the year.

Historical Perspective and Future Outlook

This development in India's forex reserves is a significant event in the country's economic landscape. It is reminiscent of similar historical events where geopolitical tensions and other factors have led to fluctuations in forex reserves.

For instance, during the 1991 economic crisis in India, the country's forex reserves had depleted to a point where India could barely finance three weeks' worth of imports.

In response, the government had to airlift national gold reserves as a pledge to the International Monetary Fund (IMF) for a loan. Since then, India has come a long way in building its forex reserves to become one of the top countries in terms of forex reserves.

Looking ahead, the price momentum remains strong, with a potential upside target of Rs 78,500 in the coming sessions, according to experts. A robust forex reserve and a strong monetary policy stance are creating confidence among trade and industry, attracting foreign investments amid geopolitical vulnerabilities.