Gold reserves of India have shot up 12 per cent in the last two months. India's gold reserves were $27.4 billion in December's last week, which shot up to $30.7 billion by the end of February. Overall, the rally in the foreign reserves has now continued for many weeks and it has surged more than 5 per cent in the last two months. At $481 billion, the country’s foreign reserves have breached the $476 billion level, which was itself a lifetime high, a week ago. With a steep surge in the forex reserves, experts are hopeful that the fall of Rupee against Dollar can be arrested. The Rupee has dived nearly 2 per cent over the last week.
The foreign reserves are important as they can also be used as banknotes, deposits, treasury bills, etc. They are also considered to be backup funds in case of an emergency like freefall in the currency value. The foreign exchange reserves are also used to maintain liquidity if there is an economic crisis or foreign obligation.
Meanwhile, a country is expected to have enough foreign exchange reserves to cover the country’s debt payments and current account deficits for one year. In rupees terms, the foreign reserves are Rs 34.75 lakh crore, out of which Rs 32.2 lakh crore is foreign currency assets and Rs 2.2 lakh crore is gold reserves. Last year, when the foreign exchange reserves dropped below $400 billion, speculations were raised that the Reserve Bank was selling gold to maintain liquidity in the system, however, the RBI later said that the fall in the gold reserves was due to a change in the valuation frequency, denying the allegation of selling the gold.