India’s foreign exchange reserves have hit a record high of $651.5 billion as of May 31, according to Reserve Bank of India (RBI) Governor Shaktikanta Das. This marks a significant increase from the $646.6 billion reported just a week earlier on May 24. Governor Das expressed confidence in the central bank’s ability to comfortably meet the country’s external financing requirements.
In a post-policy press conference, Governor Das addressed concerns about inflows resulting from JP Morgan’s bond index inclusion. He assured that the RBI is well-prepared to handle the expected $25 billion passive inflows in the government bond market. “The RBI has a number of instruments. We have managed it in the past. We will manage it this time also. So, no worries on that score,” he stated.
Governor Das also highlighted India’s attractiveness for foreign direct investment (FDI) in the Asia-Pacific region, with the country retaining its position as the most attractive destination for greenfield FDI in 2023. While gross FDI remained strong in FY24, net FDI saw a moderation. Additionally, external commercial borrowings (ECBs) and non-resident deposits recorded higher net inflows compared to the previous year.
Foreign portfolio investment (FPI) flows surged in FY24, with net FPI inflows reaching $41.6 billion. However, since the beginning of FY25, foreign portfolio investors have turned net sellers in the domestic market, resulting in net outflows of $5.0 billion as of June 5.
The inclusion process of Indian government papers in JP Morgan’s GBI-EM index will begin on June 28 and be phased over a 10-month period, with a 1% weight included each month until March 31, 2025. Indian bonds will have a 10% weight, similar to China in the index.