India's Foreign Exchange Reserves and Capital Account Surpluses
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Question 1
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Consider the following statements: 1. India’s foreign exchange is currently sufficient to cover 75 percent of the country’s external debt. 2. India has generally recorded surpluses in the capital account over the last 2 financial years.
Select the answers using the codes given below:
(a) 1 only
(b) 2 only
(c) Both 1 and 2
(d) Neither 1 nor 2
Explanation Statement 1 is correct : India’s foreign exchange reserves stood at USD 640.3 billion as of the end of December 2024, sufficient to cover approximately 90 per cent of the country’s external debt of USD 711.8 billion as of September 2024, reflecting a strong buffer against external vulnerabilities
Statement 2 is correct :The Capital and Financial Account is a vital segment of the Balance of Payment, serving as the primary mechanism for financing the Current Account Deficit and strengthening foreign exchange reserves. Over the period from Q1 of FY23 to Q2 of FY25, India has generally recorded surpluses in the capital account, largely driven by robust inflows from FDI, FPI, and external loans. These inflows have supported the country’s external position and contributed to building foreign exchange reserves.
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