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India’s foreign exchange position is comfortable with a reserve of $608.9 billion as on 25 June, minister of state for finance Pankaj Chaudhary informed the Lok Sabha on Monday.

India is the fifth largest holder of foreign exchange reserves after China, Japan, Switzerland and Russia, the minister said in a written reply to a question. India’s reserves are comfortable in terms of import cover of more than 18 months and provides cushion against unforeseen external shocks, the minister said, adding that the government and the RBI were closely monitoring the emerging external position.

Chaudhary said that the central bank takes regular steps for diversification of forex reserves by scaling up operations in forex swap and repo markets, acquisition of gold and exploring new markets/products, while adhering to safety and liquidity standards.

Variation in forex reserves is primarily the outcome of RBI’s intervention in the foreign exchange market to smoothen exchange rate volatility, valuation changes due to movement of US dollar against other international currencies in the reserve basket, movement in gold prices, interest earnings from deployment of foreign currency assets and inflow of aid receipts.

Besides exports and imports of goods and services, the overall stability of the external sector depends on other components of balance of payments including remittances (transfers), income in the current account, the size of net capital flows and external debt. India is comfortable in most of these external sector vulnerability indicators, said an official statement quoting the minister.

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