As reported by the Reserve Bank, India’s forex reserves increased by $4.039 billion to reach $598.897 billion for the week ending September 1 2023.

Forex reserves are considered the health meter of a country’s economic stability.
They consist of assets such as foreign currencies, gold reserves, and treasury bills held by a country’s central bank.
These reserves serve various purposes, including checking the balance of payments, managing foreign exchange rates, and maintaining financial market stability.
They are governed by the RBI Act and the Foreign Exchange Management Act, 1999.
Four Categories of Forex Reserves:
Foreign Currency Assets: The largest component, comprising approximately 80% of the total portfolio.
Investment in Gold: Reserves held in the form of gold.
Special Drawing Rights (SDRs): Allocated by the International Monetary Fund (IMF).
Reserve Tranche Position: A component of IMF reserves.

Extreme Vulnerability: Provides foreign currency liquidity to absorb economic shocks during crises or when borrowing access is restricted.
Facilitating External Trade: Supports external trade and payments, ensuring the orderly development of the foreign exchange market.
Currency Stabilization: Serves as a backup fund to stabilize the domestic currency in case of rapid depreciation or insolvency.
Rupee Depreciation Control: Allows the central bank (RBI) to sell foreign currency (e.g., dollars) to prevent excessive rupee depreciation.
International Reputation: A robust forex reserve demonstrates a country’s reliability in international trade, attracting foreign trade partners.