Then, foreign portfolio investors (FPIs) have also poured in another $37 billion into the Indian stock markets. This is particularly significant as the country has just emerged from a technical recession, defined as two consecutive quarters of GDP contraction, as a result of the headwinds generated by the Covid-19 outbreak.
Thus, India’s foreign exchange reserves, which had touched a record high of $590.19 billion in the week ended January 29, 2021 before dipping slightly to their current levels, are now sufficient to cover one year’s worth of imports.
The country is, thus, strongly placed to deal with the inevitable flight of capital to safer harbours when the US and European central banks begin to wind down their expansionist monetary policies.
The last “taper tantrum” in 2013 led to a near run on the rupee, which depreciated almost 30 per cent against the dollar between May and August, causing severe economic mayhem and leaving a trail of financial misery in its wake.