India's foreign exchange reserves continued to rise for the third week in a row, reaching an impressive two-year high of $636.10 billion on March 8, according to data from the central bank.
The reserves increased by a whopping $10.47 billion in the reported week, marking the largest increase since the week that ended July 14, 2023.
The reserves increased by $9.5 billion in the two weeks before this, bringing them closer than ever to their record high of $642.45 billion, which was recorded in September 2021.
RBI tackles rupee fluctuations, boosts forex reserves
The Reserve Bank of India (RBI) proceeds to step in to control dramatic swings in the value of the rupee on the foreign currency market. According to traders, the RBI may have purchased dollars during the week under review to handle significant debt and stock market inflows.
The increase in reserves coincides with a rise in the value of gold, which climbed to $50.72 billion from the previous week's $48.42 billion. Gold prices surged during that week. In India, which is the world's second largest gold consumer, local prices hit a record high of 66,356 rupees per 10 grams on March 8.
The fluctuations in foreign currency assets happen due to the actions taken by the RBI and the rise or fall in the value of foreign investments that are a part of the reserves. Foreign exchange reserves also comprise India's saved-up funds in the International Monetary Fund.
In the week when the foreign exchange information was recorded, the rupee increased its value by 0.1% compared to the dollar. It was traded between 82.7250 and 82.9275. The local currency settled at 82.8775, experiencing a slight drop of around 0.1% over the week. It marks its first decrease on a week-by-week basis since mid-February.
Sitharaman's budget ushers in decade of economic shift
In other news, Finance Minister Nirmala Sitharaman presented an interim budget for India last January, marking almost a decade under Prime Minister Narendra Modi's leadership. Instead of offering handouts before the upcoming national elections, Sitharaman highlighted the government's accomplishments over the past ten years.
In 2025, Sitharaman cut the food subsidy by 3.3 percent, bringing it down to 2.12 trillion rupees ($25.5bn) from its previous value of 2.05 trillion rupees ($24.6bn) this fiscal year. Simultaneously, the fertilizer subsidy was also reduced, even though the capital expenditure of 1.3 trillion rupees ($15.6bn) remained constant.
By controlling expenditures, she declared that the fiscal deficit for the year ending March 2025 would be 5.1 percent. This is less than the anticipated market prediction of around 5.3 to 5.4 percent.
Bannerjee said the lowered subsidies show India's shift from agriculture to manufacturing. Previously, the government had promised to provide free food to the nation's poorest individuals, protecting them from possible increases in food prices.
In her address, Sitharaman stated that the average real income increased by half, over 250 million individuals escaped poverty, and the economy shot up from the 10th to the 5th largest worldwide in the last decade. However, the opposing Congress party has questioned these figures.
The interest in the nation's Food for Work program has increased over the past year. It suggests that the country's most disadvantaged individuals are experiencing hardship.
Sunil Sinha, the principal economist at Fitch Ratings, highlighted that while there isn't a broad-based corporate investment revival yet, several sectors are demonstrating promising growth. Sectors like steel, cement, and renewables, among others, are increasingly growing. This growth is primarily thanks to the government's increased investment in infrastructure, thereby indicating some promising green shoots in the private sector capital expenditure.
Government expert Bannerjee suggests that improved tax collection could have helped decrease the fiscal deficit. This increase in tax collection was achieved by broadening the reach of luxury tax to include expenses like dining at restaurants.
All of this allowed the Finance Minister to keep to her capital expenditure allocations while maintaining fiscal health. India has been consistently investing in public infrastructure, such as roads, metros, and ports, at a record pace.
This, in turn, has been the key driving force of the country's economic growth. Fitch Rating's Sinha adds a note of commendation for the Finance Minister's strategy, recognizing that she has managed to maintain her focus on Capital Expenditure without diluting its effectiveness.