Explained: How India tanked up on Dollars amid raging Iran war to touch record forex reserves of $740 bn

Picture this! The country’s finance minister, a top-notch Congress politician, and the then economic affairs secretary huddled in the North Block – the colonial structure which housed the finance ministry then – gasping for strategies even as the Indian Rupee took a massive beating against the Dollar in the wake of the taper tantrum by the U.S. Federal Reserve, which caught the Indian government off guard.

This way May 2013. The finance minister in question, P Chidambaram and the then economic affairs secretary Aravind Mayaram could not salvage the situation, as, the fact remains, India was not prepared for the Federal Reserve rolling back the quantitative easing adopted post 2008 economic crisis.  

What happened in 2013 and how is the situation different now?

And when the Federal Reserve hinted in May 2013 that it would roll back its quantitative easing (QE) program, all hell broke loose on India, impacting currency, which plummeted to historical lows and widening of the current account deficit to 4.9% of GDP in Q1, FY14. High crude oil prices only aggravated the situation.

Now cut to 2026. Even as the U.S. Iran war continues to rage in full fury, any possibility of a peace deal between the warring factions seems distant, the global energy prices are soaring, and inflation risk continues, India’s foreign exchange reserves have soared to record levels of $740 bn.

There are several factors that have gone into this. RBI’s special dollar swap and deposit programs have led to colossal capital inflows. As a result, there is no significant pressure on the current account deficit. Even though the rupee has depreciated 5% ever since the beginning of the Iran due to high crude oil prices, India's current account deficit widened to $4.2 billion, or 0.5% of GDP, in the first quarter of FY27, according to RBI, marginally up from 0.4% of the GDP in the same quarter of the previous financial year.  

What measures have been taken by RBI to shore up dollar inflows now?

The banking regulator introduced a special USD-INR forex swap window, offering banks a free of cost hedging facility to raise foreign exchange deposits. It also provided discounted hedging for PSUs.

How much is the total dollar inflow due to RBI measures?

The RBI also launched FCNR(B) deposit scheme. The two helped a massive dollar mop up in the last couple of months. Till august 31, a total of $136.38 billion has been raised, out of which FCNR(B) deposits accounted for $127.23 billion.

How do the reserves stack up?

Foreign currency assets (FCAs), the largest component of India’s reserves, increased by $9.337 billion during the week ended August 28 to $600.67 billion. FCAs also reflect the impact of appreciation or depreciation in major non-US currencies such as the Euro, Pound and Yen held as part of the reserves.

Gold reserves, the second-largest component, rose by $2.191 billion to $116.409 billion. Meanwhile, special drawing rights (SDRs) declined by $43 million to $18.81 billion, while India’s reserve position with the International Monetary Fund (IMF) fell by $11 million to $4.914 billion.

How much did the exports contribute?

Majorly, as the exports growth continues undaunted despite the global disruptions. Exports have grown 25.8% growth to Rs 22.6 lakh crore in Q1FY27, from Rs 17.97 lakh crore in the same quarter of the previous financial year. India’s exports rose 19.63% year-on-year to $44.24 billion in July.