Moderation in RBI’s FCA and normalization of merchandise import demand has led to a sharp fall in India’s import cover
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India’s Foreign Currency Assets slipped to 533 bn in Apr-22 from its monthly peak of USD 578 bn in Aug-21. Over Mar-Apr 2022, FCA fell significantly by USD 33 bn. Out of this, USD 20 bn is on account of maturity of past buy/sell swap as well as conduct of fresh sell/buy swap by the RBI. The remainder USD 13 bn is on account of reserve drawdown (estimated at USD 7 bn) to smoothen FX volatility and FX revaluation impact (estimated at USD 6 bn) from dollar strength. Moderation in RBI’s FCA and normalization of merchandise import demand has led to a sharp fall in India’s import cover (implied by cumulative of spot, forwards, and futures reserve) from its post pandemic peak of 19.7 months in Feb-21 to 11.6 months in Apr-22. However, it continues to remain above its pre COVID level of 10.9 months in Feb-20.