Impact of Corona Virus on India's foreign exchange reserve

India's foreign exchange reserves decreased by more than $ 11.98 billion in the week ended March 20, after nearly 12 years. The central bank of the nation (Reserve Bank of India) has sold foreign currency to prevent the depreciation of the rupee. This has impacted the foreign exchange reserve very badly.

India's foreign exchange reserves declined by $ 11.98 billion to $ 469.9 billion in the week ended March 2020. The last time such a big decline in foreign exchange reserves was during the 2008 global financial crisis. Foreign exchange reserves had fallen by $ 15 billion during the week ended October 24, 2008. During this period, there was a huge decline in the foreign exchange reserves due to the recession due to the subprime crisis.A country like India where there is great importance for foreign reserve as India imports more than 82 percent crude oil of its total need. Means India completely dependent on imports for crude oil and which is a vital energy source. Being a developing country demand for energy products is continuously increasing. India is not only a great importer of crude oil but also of gold. India imports more than 1000 tons of gold every year and which consumes India’s foreign reserve to a great extend. In India, gold is a commodity not only purchased for investment purpose but it has its own social, religious value in Indian culture. Especially during marriages and festival the demand for the gold increases. To import crude oil and gold central government has to spend a big amount of foreign reserve

The coronavirus has emerged as a global epidemic. Due to this, foreign investors are withdrawing their money from emerging markets including India. It is estimated that foreign investors have withdrawn $ 15 billion from Indian markets in the three weeks of March. Withdrew approximately $ 6 dollars during the week ending March 20. During the same period, the market capitalization of the stock market declined the most.

Foreign exchange dealers said that the central bank has sold a large number of dollars to handle the falling rupee. Economists said that the central bank has enough money reserves. Concerns over COVID-19 and its potential impact on the global economy have led to the depletion of the central bank's gold-stock by $ 1.6 billion.