Syllabus:

GS3: Indian Economy and issues relating to planning, mobilisation of resources, growth, development and employment.

Context: 

The share of gold in India’s total foreign exchange reserves rose sharply to 11.4% in 2024, up from just 6.7% in 2019.

Key Highlights:

• As gold prices surge to historic highs on the back of heightened geopolitical uncertainty, data shows that India’s central bank, had been an aggressive buyer in 2024.
• In 2024, according to the World Gold Council, the RBI was the second-largest central bank in the world when it came to purchasing gold, buying 72.6 tonnes in 2024, raising the total gold reserves by 9%. 
• The gold quantity bought in 2024 is also over four times the amount it bought in 2023 - 16 tonnes. 
• Prior to this, India bought this level of gold in the past seven years was in 2021, when RBI purchased 77.5 tonnes. 
• Poland was the top buyer in 2024, expanding its reserve by 25 per cent with 89.54 tonnes of gold.

• Amid concerns of a tariff-led recession, a weakening US Dollar Index, and ongoing geopolitical tensions, both investment demand and global central bank gold purchases are expected to persist in the foreseeable future.
• According to WGC data for April, with 879 tonnes of gold reserves, India is the 8th largest in terms of gold reserves after the US, Germany, Italy, France, Russia, China and Switzerland. 

 Foreign Exchange Reserve

• Foreign exchange reserves, or FX reserves, are assets held by a nation’s central bank or monetary authority. 
• These are primarily held in reserve currencies such as the US Dollar, with smaller portions in the Euro, Japanese Yen, and Pound Sterling.  
• Governed by- RBI Act, 1934 and the Foreign Exchange Management Act, 1999.
• The RBI often intervenes in the currency market by managing liquidity—selling dollars to curb a weakening Rupee and buying dollars when the Rupee strengthens.  

Mains Practice Question:

Q. How can the RBI’s manage its forex reserves amid tariff war and geopolitical crisis?