India has received a concerning piece of economic news. For the third consecutive week, the country's foreign exchange reserves have witnessed a significant decline. The total fall now exceeds $7.3 billion—equivalent to over ₹63,000 crore. This drop is raising questions about the reasons behind the consistent erosion of India's forex reserves and its broader economic implications.
According to the latest data released by the Reserve Bank of India (RBI), in the week ending July 18, 2025, India’s foreign exchange reserves declined by $1.83 billion, bringing the total reserve to $695.489 billion. This marks the third straight week of a decline, with a cumulative drop of $7.293 billion during this period.
To put things into perspective, back in September 2024, India’s forex reserves had reached an all-time high of $704.885 billion. The current level reflects a notable drop from that peak.
So what’s causing this consistent decline in reserves?
Experts suggest that one of the primary reasons is the depreciation of the Indian rupee against the US dollar. As the rupee weakens, the cost of imports rises, especially for essential commodities like crude oil, electronics, and industrial goods. To stabilize the rupee and prevent excessive volatility in the forex market, the RBI has been intervening by selling US dollars from its reserves. While this helps in managing currency fluctuations, it also results in a reduction in the overall forex reserve.
Let’s break down the components of India’s forex reserves to understand the decline more clearly. The reserves comprise four major elements:
Foreign Currency Assets (FCA): This is the largest component of India’s reserves. It saw a significant decline of $1.21 billion and now stands at $587.69 billion. Changes in the value of other currencies such as the euro, pound sterling, and yen also impact this component.
Gold Reserves: On a positive note, gold reserves witnessed a marginal increase of $50 million and now stand at $84.499 billion. This slight rise offers some cushion amidst the broader decline.
Special Drawing Rights (SDRs): Allocated by the International Monetary Fund (IMF), SDRs fell by $11.9 million and currently stand at $18.683 billion.
IMF Reserve Position: This component also declined by $13 million and now totals $4.698 billion.
When we compare India’s situation with neighboring Pakistan, the contrast becomes starker. According to the State Bank of Pakistan, the country’s forex reserves have dropped by $69 million (approximately ₹580 crore). As of July 18, Pakistan’s central bank holds $14.46 billion, while commercial banks have $5.46 billion, totaling a combined reserve of $19.92 billion. Pakistan’s economy remains under severe pressure, with the country relying on its reserves to service external debt, further weakening its forex position.
Despite India’s recent decline, it is important to note that the country still ranks fourth globally in terms of forex reserves. The current reserve level of $695.489 billion is adequate to cover 11 months of imports and 96 percent of India’s external debt. This gives India a strategic cushion in case of any global economic turbulence.
RBI Governor Sanjay Malhotra has reassured that India’s economic fundamentals remain strong. He emphasized that the country’s forex reserves provide a safety net during crises. However, he also cautioned that continued depreciation of the rupee and global trade uncertainties must be monitored closely.
India's growth story continues to attract global attention, but maintaining resilience in the face of economic challenges like currency depreciation and external trade volatility is equally important.
What do you think? How should India address this issue and safeguard its reserves? Share your thoughts in the comments section and don’t forget to subscribe to our blog for more in-depth financial updates.
