Shanlax

International Journal of Economics

Trend Analysis of Indian Foreign

Exchange Reserves after Post COVID-19
Pandemic
OPEN ACCESS
D. M. Basavarajaiah
Karnataka Veterinary Animal and Fisheries Sciences University, Bidar, Karnataka, India
Manuscript ID:
[Link]
ECO-2024-13028397
B. Narasimhamurthy
Volume: 13
Former Scientist ‘G’ NIE, ICMR, Chennai, Tamil Nadu, India

Issue: 2 M. D. Suranagi
Karnataka Veterinary Animal and Fisheries Sciences University, Bidar, Karnataka, India
Month: March
Abstract
Year: 2025 India is one of the leading countries for economic growth worldwide, and external trade showed
a positive trend in the last quarter of the year. According to the Ministry of Economy and Finance
P-ISSN: 2319-961X (annual report 2021), there has been a strong correlation between capital flow and the positive
growth of FOREX reserves as compared with Asian countries. It is the fourth-largest forex reserve
holder in the world as of December 2022. India’s merchandise exports and imports showed a
E-ISSN: 2582-0192 linear relationship and declined during the COVID-19 pandemic hit due to the financial burden,
low parity of purchasing power, unemployment, low production performance in the manufacturing
Received: 25.11.2024 companies, higher debt, improper management of the service sector, etc. According to RBI
statistics, foreign exchange reserves hovered at US$63.10 billion in the first half of last year.
Financial inflation is a scourge in many parts of the world. A necessary analytical study will be
Accepted: 10.02.2025
necessary for taking the right decision at the right time to control financial inflation at the global
level. In this paradigm, the present study will attempt to address the trend of forex and GDP by
Published Online: 01.03.2025 applying advanced statistical modeling techniques and revisiting financial principles to correlate
with real data sets for predicting economic feasibility by 2030. This study will help economists and
Citation: financial analysts initiate operational research on an empirical basis and also greatly assist in
drafting financial policy at the national and global level.
Basavarajaiah, DM., et
Keywords: Forex Reserves, GDP, Financial Growth, Model, ARIMA, COVID-19
al. “Trend Analysis of
Indian Foreign Exchange
Introduction
Reserves After Post Covid
19 Pandemic.” Shanlax In June 95, a blueprint was laid out in the report of an expert group on
International Journal of the foreign exchange market in order to develop the Forex market in India.
Economics, vol. 13, no. 2, Later in August 97, the Committee on Capital Account Convertibility (CCAC)
2025, pp. 21-36. gave some recommendations regarding financial markets that were relevant to
the forex market. After the collapse of the Bretton Woods agreement in the
DOI: 70s, market players in forex became active to boost the Indian economy at the
[Link] global level. Indian currency value has declined for the exchange of currency
economics.v13i2.8397 because of the stringent guidelines that prevailed, and all banks are required to
undertake only cover options and the square’ position at all times. Since the
beginning of the forex market in 78, the Reserve Bank of India has allowed
the banks to undertake intraday trading in the forex market, and as a result, the
This work is licensed
Indian economy has improved. The stipulated maintenance of a square’ position
under a Creative Commons
with close business hours each day to know the INR trend in the global market
Attribution-ShareAlike 4.0
As per the past annual reports (70 to date), the main banks started quoting
International License
two-way rates against the rupee (INR) as well as cross-currency rates to make
profit. In the interest of maximization of economy, the daily announcement of
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International Journal of Economics

INR and forex interaction was notified by the RBI Lockdown 2.0 (April 15-May 03)
on its buying and selling rates through Authorized With the increase in Covid-19 cases, Indian
Dealers (ADs) with exchange rate regimes between currency depreciated and stock exchange index
70 and 92. The RBI quotes for buying and selling fell. There was strong negative correlation between
effectively became the centre around which the sensex rate and exchange rate. We do no find
market was managed because of the current RBI significant dependence between the growth rates on
financial transaction policy (buying and selling are applying VAR. Sensex rate and exchange rate would
unlimited amounts for the intervention currency, have taken about 6-8 days to return to their long run
resulting from the banks’ merchant purchases). growth trend.
Daily market clearing activities carried out by the Lockdown 3.0 (May 04-May 17)
RBI naturally result in some kind of variation in the With the increase in Covid-19 cases, the Indian
quantity of reserves. In addition, a few types of capital currency depreciated and the stock exchange index
and current account transactions made on behalf fell. There was a strong negative correlation between
of the government were sent directly to the reserve the senex rate and the exchange rate. The Sensex rate
account. In this regard on the reviewing of financial and exchange rate would have taken about 10 days to
transaction modalities, Prof .Rangarajan committee return to their long run growth trend.
was constituted by the Government of India for
reviewing the perspective of economy boosting. Lockdown 4.0 (June 1-June 30)
In addition to one more committee, Sodhani and With the increase in Covid-19 cases, the Indian
Tarapore also addressed this issue and contributed currency depreciated and the stock exchange index
significantly, along with the Rangarajan committee, experienced a small upward effect. There was a
to reviewing the foreign exchange market in India. positive correlation between the senex rate and the
However, the foreign exchange market (Forex) is exchange rate. We find no significant dependence
one of the most important international markets that between the growth rates when applying VAR. The
helps countries improve their economies and well- Sensex rate and exchange rate would have taken
being. In most cases, capital flows from developed about 5 and 6 days, respectively, to return to their
countries to resource-poor countries. The foreign long-run growth trends.
exchange market affects employment through real Unlock 1.0 (June 1-June 30)
exchange rates in mid- and lower-income countries With the increase in Covid-19 cases, the Indian
and also affects the commodity price index, inflation currency has improved, and the stock exchange index
through the cost of imports, etc. They affect has performed better in first-order growth. There was
international capital flow through returns and risks a negative correlation between the senex rate and the
from capital to low-abundant countries. Due to the exchange rate. We do find significant dependence
Covid-19 during 2020, the economy and forex had between the sensex rate and a four-period lagged
a dropdown and asymptotically reached the axis. difference in exchange rate when applying VAR.
The following variations are noticed in the Covid-19
Pre-Lockdown to Lockdown 1.0 (March 11-April
pandemic in the global market.
14)
With the increase in Covid-19 cases, the Indian
Effect of COVID-19 on Foreign Exchange Stock
currency depreciated and the stock exchange index
Market
fell. There was a negative correlation between the
Lockdown 1.0 (March 25-April 14)
sensex rate and the exchange rate. The Sensex rate
With the increase in Covid-19 cases, the Indian
and exchange rate would have taken about 3 days.
currency depreciated and the stock exchange index
fell. As per the statistics report, there was a negative Pre-lockdown to Unlock 1.0 (Mar 11-June 30)
correlation between the sensex and exchange rate,1- With the increase in Covid-19 cases, the Indian
2 year steepest ascent of economic growth was currency depreciated and the stock exchange index
observed. fell. There was a negative correlation between

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International Journal of Economics

the senex rate and the exchange rate. We do find reduce the pandemic’s social and economic impact.
significant dependence between the sensex rate and a Their currencies external value was supported by
four-period lagged difference in exchange rate when the central banks managed float regions, which
applying VAR. triggered large swings in the Forex volatilities in
contrast to countries like South Africa, South Korea,
Global Market Constraints Switzerland, and Turkey.
The global economy has faced inflation too many
issues during Covid-19. Many countries around Review of Literature
the world have restricted travel, shut borders and They preserved employment and business and
locked themselves out to avoid the spread of the supported households. This last interest rate provided
pandemic. These measures have had severe impacts massive liquidity to the financial markets and also
on economic activity. The International Monetary relaxed temporary prudential rules for banks. We
Fund (IMF) predicted that the global economy might find a robust dynamic correlation between the
contract by 3 percent in 2020. The foreign exchange exchange rate volatility and the contamination of
(Forex) market, which is the largest financial coconuts in the pandemic. Policies like lockdowns,
market, has seen unprecedented movements and is strict migration policies, travel bans, and fiscal
now closely watched by policymakers and others stimulus during Covid-19 have created uncertainty
to bring it back to normal. The impact of Covid-19 for both policymakers and investors. The uncertainty
may vary among currencies according to their of macroeconomics and policy negatively affects
governments policy responses, risk sensitivities and economic growth. Exchange rate response is
market standing. The evidence shows that there was insensitive to any shock in the system; this
a significant change in the strength of multifractality, insensitivity could have contributed to the active
which points to a general decline in the forex intervention of the central bank, the RBI, during the
market. There was no single policy response that pandemic by selling US dollars from international
was successful in the short term during Covid-19 reserves in the foreign exchange market. Disease
(Bouhali et al.). Covid-19 has caused a sharp squeeze outbreak-induced uncertainty did not diminish the
in liquidity across the financial markets. Emerging foreign exchange market but diminished the oil stock
and developing financial markets suffered the most markets, and this is because of the Reserve Bank of
destruction when compared to developed markets. India’s intervention (Njindan Iyke). With a one
There was a disconnection between the state of the percent increase in confirmed cases, there is
real economy and financial market performance in depreciation in the local currency by 0.01% in
many countries, while unconventional monetary emerging markets, while the impact on advanced
and fiscal plans were made in Western Europe and countries’ exchange rates is weak. Fiscal policy
the United States in order to reduce the pandemic’s appreciated the local currency, while monetary
impact on their populations and economies. policy appreciated initially, followed by significant
depreciation. Policies had a stronger impact on the
Morocco and Tunisia exchange rate in emerging markets. Unconventional
These countries faced social and economic monetary policy appreciated the local currency,
burdens due to lockdown. The central banks which indicates that the signal effect may dominate.
decreased their interest rates in powerful ways. The Covid-19 depreciated local currency values in
foreign exchange rate band was wide and varied emerging markets but not in advanced countries.
from (2.5%-5% ) by Moroccan monetary authorities. Unconventional monetary policy or expansionary
fiscal policy reduced the downward pressure of the
Russia, India, Brazil, and Kuwait pandemic on the exchange rate. It might have the
These countries’ monetary policies reduced opposite effect of conventional expansionary
the key interest rates, relaxed macroprudential monetary policy. A disease outbreak does not have
banking rules, and eased flow controls in order to better prediction power over returns than volatility

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International Journal of Economics

for a one-day forecast horizon (Van Der Westhuizen more. We find positive effects of $X returns on
et al.). Price and volatility have impacts on the dependencies between Cny and Zar for the second,
behaviour of the exchange market. There were third, and fourth stages. During the second stage, the
shocks and asymmetric spillovers from the exchange $ exerted positive effects on the co-movements
to the stock market. Due to contagious risk, there between the main importing partners’ currencies.
was a decrease in domestic stock returns and Fluctuations in $ and CNY were transferred to INR.
subsequent capital outflows, which weakened the Pair dependencies between China and other BRICS
exchange rates. There was a contemporaneous countries declined due to the pandemic and the
relationship between exchange rate changes and depreciation of the $, which weakened the linkages
stock returns. Investors in South Africa who wanted between the currencies (Narayan). During the pre-
to hedge their investments might have made use of pandemic period, the $ and yen exchange rate was
the information in order to manage their currency non-stationary, and when the pandemic hit, the yen
risk strategies and international portfolio risk. became stationary. Shocks to the yen had a transitory
According to the proponents of the intervention, it effect. The behaviour of yen is due to Covid-19
can avoid a swift price decline in the stock market (Chaudhry). Due to the pandemic, many currencies
and restore confidence in the investor, while like €/$, £/$, $/CAD, $/AUD, $/CNY, $/CHF, $/
opponents claim that any form of intervention can SEK, and $/¥ suffered along with financial markets
seriously compromise the integrity of the market like the stock market. Counties faced abnormal
because the stock market stands as a leading financial returns on major currencies. It was observed one day
indicator of the economy. As South Africa’s financial before WHO announced that Covid-19 was a
markets are vulnerable to global events, we can pandemic. Average abnormal returns of major
consider the ‘meteor shower’ effect of global currencies were observed before the announcement
financial markets on stock and exchange rate markets of the first confirmed case of Covid-19 in the relevant
(Xu and Lien). Brazil, Russia, India, China, and country. They were estimated to be 0.65%. Short-
South Africa the BRICS countries have emerged as term returns were observed on the day when the
emerging economies during the last two decades. World Health Organization announced Covid-19
The dependency between INR and Cny is less was a pandemic. It was estimated on the day of the
persistent when compared to the rest (Brl, Rub, and first positive case in the respective countries and on
Zar). During the first and second stages of the the day of the first death case from the Covid-19
pandemic, the dependency between Brl-Cny and outbreak. Investors in major currencies earned
Rub-Cny decreased. Dependency between INR-Cny positive returns during these three different scenarios
was fluctuating and Zar-Cny was quite stable. There (Agarwal et al.). India’s foreign exchange reserves
were no changes in the third stage. During the fourth had a positive performance, but then, in a short
stage, dependency of Cny with Brl and Zar increased while, they declined due to the pandemic. There was
and dependency between Cny and Rub decreased, a huge outflow of Indian foreign exchange reserves
which is due to Covid-19 breakout in other countries. in late March 2020. India saw its highest ever capital
$ flow became an important driver of BRICS outflow of 17.33 billion US dollars since 2008. The
exchange rates. $ tends to appreciate during performance showed negative growth rates during
pandemics, and a similar trend was observed in the March 2020 when compared to March 20. The
BRICS. The $X returns have no effect on pandemic surged the risk aversion of the FPI, which
dependencies between Cny and the other four resulted in a capital outflow. Indian currency value
countries’ currencies during the first and fourth depreciated, which caused the RBI to sell US dollars
stages. INR was positively affected by $X returns to defend Indian rupees (INR). Later, Foreign
during stage two, and Brl and Rub were positively exchange reserves showed positive growth until
affected by $X returns during stage three. The US is July, which were due to the inflow of the foreign
the most important export market for BRICS, and development index and lower import bills. Along
with appreciation in the $, it helped BRICS export with this, FPI gained confidence, and so people

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International Journal of Economics

invested in the stock market, which increased the market is the primary requirement for the health of
stock of foreign exchange reserves. The threshold the global economy (Sethi et al.). The exchange rate
limit to hold foreign exchange reserves to cover is the most affected asset price due to Covid-19.
imports is 25% of annual imports. But India held These shocks to the exchange rate of the Japanese
much more than the threshold limit. It had 94.35%). yen to the US dollar have a permanent or transitory
The threshold limit to hold foreign exchange reserves effect. Evaluates the resistance of the exchange rate
to cover external debt shouldn’t fall below 40% of to the pandemic, and the modelling is based on the
total external debt. India had exceeded that limit. It unit root. A unit root test confirms that the stationary
was able to cover more than 80%. India had four exchange rate implies the existence of purchase
times more than the proposed limit (100%) of foreign power parity (PPP). The above study uses the two-
exchange reserves to cover short-term debt. Also, endogenous structural break unit root model to
India had a higher level of broad money, which understand the evolution of exchange rates from
increases the confidence of the currency (Feng et al.; shock persistency. Yen became highly stationary
Agarwal et al.). Investors adjust their expectations during Covid-19, indicating that shocks in Yen are
for policies and the economy, which leads to having a transitory effect. These changes in the Yen
exchange rate volatility because of a high level of have caused the largest global shock due to Covid-19
economic policy uncertainty. Investors’ confidence almost 45% of households across the country faced
will increase, the financial market will stabilise, and an income drop due to Covid-19. The Indian
exchange rate volatility will be curbed with the economy expected a loss of Rs. 32,000 every day
implementation of powerful government measures during the first 21 days of the pandemic. The Indian
that send a strong signal to the market. With an equity market entered bear market territory. Investors
increase in positive cases, exchange rate volatility bid up bond prices, causing the major yield economies
intensifies. The overall government response index, to inch lower. Business people faced a lot of issues as
the economic support index, the containment and their businesses were dependent on money.
health index, and the stringency index show a (Sikarwar) firms faced higher currency risk during
restraining effect on the exchange rate. Measures like Covid-19. The magnitude of the firm’s currency risk
public transport closures and school closings also increased from 0.27 to 2.1. The sensitivity of the
play a role in restraining exchange rate volatility. tourism industry to exchange rate fluctuations during
Fiscal policy, international aid, and income support Covid-19 is large. The firm’s asset turnover and
policies play roles in restraining exchange rate liquidity had also reduced. The valuation of firms
fluctuations. Exchange rate volatility can be had decreased due to negative profit margins and a
restrained by government intervention like public higher debt burden. Larger firms and debt-to-asset
information campaigns and restrictions on ratios had higher foreign currency risk, which is due
international movement (Gunay). This study analyses to higher hedging costs or inappropriate hedging
the current status of the decrease in the foreign (Garg and Prabheesh). This investigates if the interest
exchange markets by comparing it with turbulence. rate differentials cause an expected change in the
The study examines the foreign exchange markets exchange rate during Covid-19 and also examines if
and their reaction to the pandemic. Chaos in the investors in the international asset and exchange rate
exchange market is not as bad as it was during the markets take advantage of the information obtained
Global financial crisis. It indicates that of the six during the Covid-19 pandemic. The interest rate
foreign exchange rates, the Japanese yen showed a differentials Granger describes cause the exchange
higher risk during the Covid-19 pandemic. It also rate to change in all six BRICS economies for a short
investigates the impact of the GFC and Covid-19. On term. The interest rate differentials improve the
six exchange rates ($-€, $-£, $-¥, $-Ncy, $-Brl, and predictability of future changes in exchange rates,
$-Try). The epidemic has affected the health of the and they also indicate that investors show rational
public and the financial market negatively; it displays behaviour as the foreign exchange market provides
risk in all types of indicators. Stability in the currency information about the interest rate differentials. The

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International Journal of Economics

findings can be attributed to an unexpected event like maturity date; in the European call option, one
Covid-19, which contains information that could must break or buy the contract only at the maturity
enhance the exchange rate prediction. (Gupta and date). The Covid-19 pandemic that started in March
Chatterjee) dollar took on a central role in the foreign 2020 has impacted almost all sectors. The global
exchange network even during Covid-19. Major economy and the national economy have also been
currencies like INR and Cny, which were linked to $ negatively impacted. This is due to huge variations
through SGD, are now connected directly to $. € And in international cash flow. Countries closed their
CHF remain closely linked in both networks. All borders and imposed lockdowns, and hence trade
currencies were closer, and hence they started stopped for a while, which affected the economy.
fluctuating during the pandemic. Movements in the
leading currencies will transfer to the rest of the Methods
currencies. From the reader’s point of view, the In order to arrive at a conclusion using the data,
following market structure was described: ARIMA with substitution method (lag period) is
used. The ARIMA (Auto Regressive Integrated
Spot Market
Moving Average) model is used to know the trend and
In the spot market, transactions between the
fluctuation in the foreign exchange market at global
currency pairs happen on the spot or immediately
market before the Covid-19 pandemic and during
after entering the contract. It happens at the
the pandemic. The data was collected from foreign
prevailing exchange rate, known as the spot rate.
exchange data base (spot market turnover, forward
Here, traders are not exposed to exchange rate risk or
market turnover, cancel forward turnover of both
the uncertainty of the market.
merchant and interbank transactions). It was released
Futures Market by the Reserve Bank of India. The data was extracted
In the futures market, transactions between on daily and cohort basis from period October
currency pairs happen after certain duration of the 2018 to November 2021. Foreign exchange market
contract. It happens at an exchange rate known as the structure, players and evolution- Different type of
future rate. Here, the contract is guaranteed. Also, foreign exchange enlisted (i) Spot market (ii) Future
contracts can be sold to a third party. market (iii) Forward market (iv) Swap market and
Forward Market (v) Options market.
It is almost like a future market. The exchange rate
is known as the forward rate. The terms negotiated
can be altered or broken. It is not guaranteed.
Swap Market
In the swap market, two types of currencies are
borrowed and lent. Investors here borrow in one type
of currency and lend in another type of currency. It is
to pay off the obligations without taking on foreign
exchange risk.
Option Market
Here, the transaction happens at a future date
without any obligation. It has two types: call and
put options. With the call option, one can either buy Figure 1 ARIMA Model Construction Flow
or break the contract. With the put option, one can Chart
either sell or break the contract. In the case of the call
option, we have two types. a) American call option; ARIMA Model Formulation
b) European call option (In the American call option, If the series is non stationary, correlogram
one can buy or break the contract on or before the decays rather slowly; whereas in stationary time

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International Journal of Economics

series, correlogram decay is faster. If series is non mean zero and variance one.
stationary, convert it to stationary time series by ARIMA (1, 1, 1)
either, standardizing time series described in spectral Yt = Xt - X(t-1) (21)
analysis and differencing the time series. ARIMA Yt = ϕ1Y(t-1) + θ1 e(t-1) + et (22)
Model was formulated based on the parameter Xt - X(t-1) = ϕ1 (X(t-1) - X(t-2)) + θ1 e(t-1) + et (23)
estimation and its calibration Xt - BXt = ϕ (BX1 - B2Xt) + θ1 Bet + et (24)
Yt = X’t-1, = Xt-X’t-1; X’t (1) xt (1 - B - ϕ1 B + ϕ1 B2) = et (1 + θ1B) (25)
Xt’’ = X’t - X’t-1; Xt’’ (2)
Xt’’ = X’t - X’t-1 = (Xt - Xt-1) - (Xt-1 - Xt-2) (3) Factors Considered for ARIMA Model
Xt’’ = Xt - 2Xt-1 + Xt-2 (4) Interest Rates
Standardized data Zt’ = ((xI-x̄ II))/sI (5) Interest rate of foreign countries should be greater
Remove periodicity in data than the interest rate in the domestic country. This
B Xt = Xt-1, Xt-1 = Xt-2 (6) will make people invest in foreign countries to gain
AR (1) Model more profit.
Xt = ϕI X(t-1)+ εt; Xt = ϕI BXt + εt; (7) Economic Stability
Xt (1-ϕI B) = εt AR (1) Component (8) If foreign countries are more stable, people invest
AR (2) Model their believing that the risk is low
Xt = ϕX(t-1) + ϕ2X(t-2) + εt (9)
Xt = ϕBXt + ϕ2 BX(t-1) + εt (10) Trade Weighted Index
Xt = ϕBt + ϕ2 B2 Xt + εt (11) When a country has trade surplus, the economy
Xt (1-ϕ1B - ϕ2B2 ) = εt (12) will be strengthened. The currency value increase as
AR (2) Component; Generalized form for an AR people import goods from that country. Same way,
(p) model is, country’s currency value decreases if it has trade
Xt (1-∑P(i=1) ϕtBi) = εt (13) deficit as people have to sell their currency in order
ARIMA (p, d, q) to import goods
p = number of auto regressive terms; d = order on World Event
differencing and q = number of moving average World events affect the stability of the country.
terms Positive events can increase the strength of currency
ARMA (p, q) and attract foreign investors. While negative events
can decrease the confidence in the currency and do
not attract foreign investors.
Government Debt
(14)
Government debts are not always negative.
et = residual series; assumptions: (et) has zero mean
But when the debt is too high it could lead to inflation
with uncorrelated terms.
and so will it devalue the currency. When public that
ARIMA (0, 1, 0)
is reduced economy becomes more stable and hence
Xt - Xt-1 = et; Xt - BXt = et; Xt (1-B) = et (15)
it will attract more investors which will increase the
Xt’’ = Xt’ - X(t-1)’, (Xt - X(t-1)) - (X(t-1) - X(t-1)) (16)
value of the currency.
= Xt - 2X(t-1) + X(t-2) (17)
= Xt-2 BXt + B2Xt (18) Recession
= (1-B)2 Xt in general dth order difference is If a country is in recession, it’s interest rate will
(1-B)d Xt (19) fall making the investors not to invest in the country.
ARIMA (0, 0, 1) Speculation
Yt = c+et - θ1e(t-1) (20) If the country’s currency value is expected to
Yt depends on error term et and also previous error increase, demand for the currency also increases and
term et-1 with co-efficient -θ1, θ1 value restricted so will the value increase which will lead to rise in
between -1 and +1. Et is normally distributed with exchange rate as well.
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Country’s Current Account/Balance of Payments decreased leading to few or no investors to invest in

Country with positive current account or low such country.
current account deficit will have its currency value

Results
Table 1 Autocorrelation Function (ACF) for the Purchase Merchant Spot, Forward and
Cancel Status of Forex (2021-2022)
Purchase 1st Quarter 2nd Quarter
Merchant 1st month 2 months 3 months 4 months 5 months 6 months
Purchase Merchant Spot Foreign Currency Cash Deposit Service / Indian Rupees (Fcy/INR)
ACF -0.006 -0.009 -0.009 -0.012 -0.006 -0.008
t-value -0.189 -0.289 -0.284 -0.368 -0.205 -0.252
P value 0.425 ns
0.386 ns
0.388 ns
0.356 ns
0.4 ns
0.400 ns
Purchase merchant Forward (Fcy/INR)
ACF 0.175 0.097 0.047 0.069 0.069 0.042
t-value 5.552 3.076 1.491 2.212 2.6 1.332
P value 0.000** 0.001** 0.058* 0.013** 0.014* 0.092*
Purchase Merchant Forward Cancel (Fcy/INR)
ACF 0.121 0.079 0.084 0.037 0.023 0.029
t-value 3.831 2.512 2.666 1.182 0.738 0.923
P value 0.001** 0.006** 0.004** 0.1 ns 0.230 ns 0.178 ns
Purchase Merchant Spot (Fcy/FCY)
ACF 0.437 0.414 0.357 0.354 0.355 0.3
t-value 13.831 13.093 11.291 11.189 11.2 10.093
P value <0.001** <0.001** <0.001** <0.001** <0.001** <0.001**
Merchant Purchase Forward cancel (Fcy/Fcy)
ACF 0.325 0.215 0.066 0.013 0.061 0.050
t-value 10.291 6.813 2.082 0.428 1.9 1.594
P value 0.000** 0.000** 0.0** 0.334 ns 0.028 * 0.056*
Purchase Interbank Spot (Fcy/INR)
ACF 0.003 -0.010 0.017 0.014 0.006 0.007
t-value 0.107 -0.31 0.533 0.446 0.183 0.240
P value 0.457 ns
0.378 ns
0.297 ns
0.328 ns
0.427 ns
0.405 ns
Purchase Interbank Swap (Fcy/INR)
ACF 0.002 -0.006 0.006 0.010 0.014 0.018
t-value 0.053 -0.188 0.205 0.313 0.454 0.557
P value 0.479 ns
0.425 ns
0.4 ns
0.377 ns
0.325 ns
0.289 ns
Purchase Interbank Forward (Fcy/INR)
ACF 0.145 0.101 0.002 -0.025 -0.001 -0.001
t-value 4.584 3.184 0.081 -0.787 -0.025 -0.027
P value 0.001** 0.001** 0.468 ns 0.216 ns 0.489 ns 0.489 ns
Purchase Interbank Spot (Fcy/Fcy)
ACF 0.017 0.033 -0.0 -0.021 0.005 0.006

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t-value 0.5258 1.0582 -0.6179 -0.6794 0.151 0.2072

P value 0.299 ns 0.145 ns 0.268 ns 0.248 ns 0.440 ns 0.418 ns
Purchase Interbank Swap (Fcy/Fcy)
ACF 0.179 0.163 0.090 0.049 0.077 -0.001
t-value 5.679 5.167 2.847 1.5482 2.4348 -0.0234
P value <0.001** <0.001** 0.002** 0.061** 0.007** 0.491 ns
Purchase Interbank Forward (Fcy/Fcy)
ACF 0.146 0.078 0.004 0.052 0.112 0.105
T stat 4.632 2.484 0.124 1.657 3.532 3.318
P value <0.001** 0.006** 0.450 ns 0.049 ns 0.0021** 0.0047**

Table 1 shows the correlation between the from a multilevel perspective of the pandemic
purchase merchant spot, foreign currency cash hit, recognizing that the International Monitory
deposit service, and Indian rupees (Fcy/INR). fund has advised considering multilevel national
The purchase merchant forward, forward-cancel, policy implications at the national level. After the
merchant spot, and merchant purchase forward- COVID-19 lockdown lift, a sharp increasing trend
cancel are all found to be significant at the I and II was found in merchant purchase forward and cancel
quarters (p<0.05). The ACF value led to significant (Fcy/Fcy) with respect to Indian currency (Fcy/INR;
changes in the unobserved components. The purchase Fcy/INR). A similar trend was seen in the purchase
interbank swap and forward (Fcy/Fcy) are positively of Interbank Swap (Fcy/Fcy) and Interbank Forward
associated with the positive movement of forex in (Fcy/Fcy) on the global market as compared with
India after Covid-19. There were numerous factors US$. Multilevel cooperation can greatly reduce
that affected the Forex positive movement during the the burden on Forex and CFMs. According to the
pandemic crisis, including lockdown and restrictions statistics of the IMF, the highest estimated reserves
on traveler checks and receipts. Its magnitude and holding in US treasuries (US$ billions) were seen in
multifaceted nature require the economic feasibility China P.R. Mainland (1970.32 US$ billions), India
of the country to consider a broad range of prevention (255.10 US$ billions), and the Russian Federation
policy interventions. At the same time, the global scale (162.58 US$ billions), followed by Brazil (274.74
and protracted awesomeness of the shock increase US$ billions) and Turkey (246.48 US$ billions). The
the risk of cross-border spillovers from country- total estimated reserves were US$ 2928.14 billion,
specific policy interventions if similar policies are with total reserves excluding gold worth US$ 5082
applied by groups of countries representing a large billion. This figures are significantly affected the
share of the global economy. This was a serious note positive association of economic growth in Asian
on the forex and capital flow management measures countries.
Table 2 Emerging Market and Developing Economies (EMDEs) Distribution Accumulated Large
Holdings of US Treasuries
Total Reserves Central Bank, Securities Non Residents, Estimated Reserves
Country Excluding Gold Securities Included in Official Reserves Held in US Treasuries
Billions USD Assets (US$ billions) (US$ billions)
China 3127.49 NA 1970.32
Russian Federation 443.97 258.06 162.58
India 432.38 NA 255.1
Brazil 353.59 335.05 274.74
Mexico 177.18 0 0
Indonesia 125.34 112.38 70.8

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Philippines 79.82 37.43 33.69

Turkey 78.53 33.51 246.48
Colombia 51.97 50.07 44.06
South Africa 48.92 36.68 21.64
Nigeria 42.84 9.59 6.04
Egypt 40.69 34.04 21.44
Chile 40.64 38.97 27.67
Morocco 25.33 20.42 12.87
Pakistan 13.42 1.11 0.7
Total 5082.11 967.33 2928.14
Source: IMF Monetary and financial Statistics report 2021

Table 3 Autocorrelation Function (ACF) for the Sales Merchant Spot, Forward and Cancel Status of
Forex (2021-2022)
Sales Ist Quarter 2nd Quarter
1st month 2 months 3 months 4 months 5 months 6 months
Merchant Spot (Fcy/INR)
ACF -0.006 -0.009 -0.007 -0.009 -0.005 -0.006
t-value -0.202 -0.274 -0.239 -0.309 -0.155 -0.1
P value 0.420 ns 0.391 ns 0.406 ns 0.379 ns 0.438 ns 0.424 ns
Sales Merchant Forward (Fcy/INR)
ACF 0.304 0.279 0.237 0.2 0.2 0.179
t-value 9.586 8.779 7.465 6.907 6.066 5.638
P value <0.001** <0.001** <0.001** <0.001** <0.001** <0.001**
Sales Merchant Forward cancel (Fcy/INR)
ACF 0.068 0.117 -0.00018 -0.033 0.041 -0.050
t-value 2.153 3.686 -0.006 -1.040 1.3 -1.583
P value 0.016** 0.012** 0.498 ns
0.149 ns
0.093* 0.057*
Sales Merchant Spot (Fcy/Fcy)
ACF 0.429 0.410 0.349 0.330 0.332 0.291
t-value 13.517 12.943 10.997 10.410 10.469 9.172
P value <0.001** <0.001** <0.001** <0.001** <0.001** <0.001**
Sales Merchant Forward (Fcy/Fcy)
ACF 0.320 0.7 0.103 0.061 0.0 0.0
t-value 10.075 6.202 3.238 1.924 0.599 0.609
P value <0.001** <0.001** 0.0062** 0.027* 0.274 ns 0.271 ns
Merchant Forward cancel (Fcy/Fcy)
ACF 0.357 0.234 0.064 0.028 0.045 0.047
t-value 11.257 7.365 2.022 0.894 1.421 1.488
P value <0.001** <0.001** 0.022** 0.186 ns 0.053* 0.068*
Interbank Spot (Fcy/INR)
ACF 0.016 -0.005 0.020 0.025 0.010 0.024
t-value 0.496 -0.156 0.631 0.779 0.332 0.758

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P value 0.310 ns 0.438 ns 0.264 ns 0.218 ns 0.370 ns 0.224 ns

Interbank Swap (Fcy/INR)
ACF 0.001 -0.007 0.005 0.013 0.017 0.024
t-value 0.038 -0.226 0.147 0.402 0.525 0.747
P value 0.485 ns 0.411 ns 0.441 ns 0.344 ns 0.299 ns 0.228 ns
Interbank Forward (Fcy/INR)
ACF 0.124 0.120 0.092 0.033 0.032 0.090
t-value 3.908 3.789 2.910 1.051 1.006 2.823
P value 0.001** 0.001** 0.002** 0.147 ns
0.157 ns
0.002**
Interbank Spot (Fcy/FCY)
ACF 0.018 0.034 -0.0 -0.021 0.006 0.005
T stat 0.579 1.066 -0.613 -0.678 0.1803 0.167
P value 0.281 ns
0.143 ns
0.270 ns
0.249 ns
0.428 ns
0.434 ns
Interbank Swap (Fcy/Fcy)
ACF 0.211 0.134 0.091 0.062 0.137 0.034
t-value 6.660 4.224 2.881 1.968 4.321 1.058
P value <0.001** <0.001** 0.002** <0.001** <0.001** 0.145
Interbank Forward (Fcy/Fcy)
ACF 0.154 0.088 0.017 0.053 0.108 0.101
t-value 4.860 2.788 0.551 1.680 3.390 3.2
P value 0.000** 0.003** 0.291 ns 0.047* 0.0003** 0.0007**
*, ** Significant @5% & 1 % level respectively, ns-Non significant
Table 3 shows the autocorrelation function
(ACF) for the sales merchant spot, forward, and
cancels status of Forex. The driven results revealed
that sales forward (Fcy/Fcy) and cancel (Fcy/Fcy),
interbank swap (Fcy/Fcy), interbank forward (Fcy/
Fcy), merchant spot (Fcy/Fcy), and merchant
forward (Fcy/INR) were found to be statistically
Figure 1 Indian Forex Reserves after COVID-19
significant (p<0.05). Amid the market volatility,
Non Linear Progressions
there has been some degree of negative skewness in
cash flow and investment at the global market, and
the economic indices have a negative vertex with the
merchant sales of forex movement in India as well as
at the global level. These were first reflected in stock
indices and risk on stock exchanges, at which point
traders sell US dollars. This is evidence that reliable
data derive these indicators. They are short-term
gauges. It is unlikely that current scenario will reflect
the long-term impact of mass unemployment, the Figure 2 Trend of Indian Forex Reserves from
risk of overleveraged corporate debt, restructuring in 2012-2022
markets such as commercial real estate, and frequent The second order polynomial trend was fitted
occurrence of natural calamities at the global level. on forex reserves in different months with US
dollars. Ten-year data sets were extracted from

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the RBI newsletter. Analysis was done by the MS to the growth of the economy with a suboptimal
Excel program; the X-axis depicted the month association (R2=0.451) between the global market
wise breakdown of forex reserves, and the Y-axis (Fig. 1). A similar trend line was applied to forex
showed the US$ (million) between January 2022 reserves for the last ten years. As compared with
and February 2023. The results show that, in the the existing scenario, an approximately total of US$
month of April to June 2022, forex reserves dropped 40354 million was lost from 2012 to 2023 due to
with observed value (US$ 426482-415893 million), foreign debts, lower shares from financial marketing
and succeeding months expressed linear growth. companies, and other associated factors (Fig. 2).
Every month (6.19) US$ million was a great burden
Table 4 ACF and PACF of forex reserves
Autocorrelation Function Partial Auto Correlation Function
Time lag k ACF(k) t-stat P-value PACF(k) t-stat P-value
Jan-22 0.467 1.684 0.057 0.467 1.684 0.057
Feb-22 -0.037 -0.136 0.446 -0.327 -1.181 0.129
Mar-22 -0.151 -0.545 0.297 0.036 0.130 0.448
April-22 -0.375 -1.352 0.099 -0.444 -1.603 0.066
May-22 -0.294 -1.063 0.153 0.163 0.590 0.282
Jun-22 -0.109 -0.395 0.349 -0.263 -0.949 0.179
Jul-22 -0.135 -0.487 0.317 -0.074 -0.269 0.395
Aug-22 -0.066 -0.240 0.406 -0.162 -0.584 0.284
Sep-22 0.050 0.183 0.428 0.006 0.0242 0.490
Oct-22 0.061 0.220 0.414 -0.100 -0.363 0.361
Nov-22 0.053 0.192 0.425 -0.098 -0.355 0.363
Dec-22 0.042 0.813 0.551 -0.126 -0.348 0.374

Figure 3 Partial auto correlation function lags

Figure 5 Forex reserves predicted by bootstrap
period 3 months (1, 0, 0) model
techniques with the sampled observations
n=5100; mean=550124.10; SE=17500.073
The autoregressive integrated moving average
model (1,0,0) was fitted for the different months
(Jan 22 to Feb 23) with lag period of 3 months
by R statistical open source software. The ACF
and PACF functions show a positive correlation
observed in January 22; from February to August,
there shows negative movement of forex. Again, a
Figure 4 Auto Correlation Function Lags Period
positive move from September to December 22.
3 Months (1,0,0) model
Sales Merchant Forward (Fcy/Fcy), Spot (Fcy/Fcy),
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Forward Cancel (Fcy/Fcy), and Interbank Spot (Fcy/ series of Forex observed values of B = X1, X2, ...
INR) yielded positive responses and growth. Other, XN, XN~B (μ, σ2), μ = ((∑N(i=1)XN)/N), the variance
broader factors of the Covid-19 pandemic hit back s2 =1/B ∑N(i=1)(X̂ N)2 - (1/B ∑N(i=1)XN)2 (26)
on the decline of forex trading, and these factors go Simulation of data on the parameter concern
beyond simply crunching the linear movement or θ* = S(X̅ ) or θ*=S(μ̅), B=1000-10000 times iteration
growth. One of the biggest factors is unemployment, very small observations. Asper the analysis of
which is skyrocketing around the world as a result Forex (n=5100, mean=550124.10 SE=17500.073).
of the Ukraine-Russia war. The mounting job losses An every lag period 17500 US$ will shows the
were potentially worse than the last five years (great depression of economy growth in Indian and directly
depression) (Figures 3 and 4). The progressive causes inflation in all economic sector (Fig 5). The
growth was determined form bootstrap techniques, projection of GDP was projected from the model it
it is a resampling method used to estimate the was found to be 5.64 with SD was 2.82 co efficient
sample distribution of a statistics given independent of variation (R2=0.43).
observations. It differs from traditional statistical
theory, in that it requires modern computing power
.The goal of sampling is to accurately represent
a population of inference based on the salient
assumption . all the observed values of US$ forex
value normally distributed , estimated parameter SE
is close to the sampling distribution of the estimated
parameters SE and finally estimated parameter has Figure 6 Indian GDP Projection from the Model
a little bias in estimates. The random variable data (μ=E(x)=5.64, SD=2.822, Variance=8.30)
Table 5 Forex Reserves Trend form 1960 to 2022
Year SDR Gold Foreign Currency assets RTP Forex reserves
1960-61 - 1.18 1.86 - 3.04
1965-66 - 1.16 1.82 - 2.98
1970-71 1.12 1.83 4.38 - 7.33
1975-76 2.11 1.83 14.92 - 18.86
1980-81 4.97 2.26 48.22 - 55.45
1985-86 1.61 2.74 73.88 - 78.19
1990-91 2 68.28 43.88 - 114.16
1995-96 2.8 156.58 584.46 - 743.84
2000-01 0.11 127.11 1844.82 - 1972.04
2005-06 0.12 256.74 6473.27 33.71 6763.87
2010-11 204.01 1025.72 12248.83 131.58 13610.13
2017-18 100.2 1397.4 25975.7 135.2 27608.5
2018-19 100.76 1595.85 26655.64 206.57 28558.82
2019-20 108.00 2350.27 33338.15 27.13 36021.55
2020-21 125.57
2021-22
Source: IMF

IMF, 2020 report presented in table (5). The of forex, r = the constant rate of change over time
driven facts and figure shows the forex reserves ‘t’. 79.83% cumulative growth. Forex is composed
exponentially increasing trend from 1960 to 2020 of gold holdings, special drawing rights (SDR)
(Growth) x(t) = x0*(1+r/100)t, x0 = initial value and foreign currency asset. Other than these main
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components position of forex reserves, reserve also drove capital flows to safe haven US$ markets,
tranche position with IMF also plays in important contributing to rising sovereign bond yields and the
role for financial position of a country. depreciation of most currencies against the US$. The
social sector had significantly witnessed increases in
Discussion government spending, with a marginal increase of
Undoubtedly, the COVID-19 pandemic tarred INR 21.30 lakh crores in FY 23 from INR 9.1 lakh
the economies of these countries and affected them crores in FY 16. Another limitation was the poverty
worldwide. Severely affected in developing and index, which significantly moved 41.50 crores
middle-income countries. The level of impact on the people between 2019 and 20. The performance of the
quality and well-being of the people and the level of agriculture and allied sectors has been buoyant over
impact on lives and economic holdings dependent on the past several years, much of which is on account
factors such as awareness and strict implementation of the measures taken by the government to augment
of health policies drastically declined during the crop and livestock productivity, ensure certainty of
outbreak of disease in 2020–21. After lifting the returns to the farmers through a lack of price supports,
lockdown at the global level, all infrastructure, not promote crop diversification, promote improper
service sectors, and production sectors will perform market infrastructure through the impetus provided
extensively and move with a positive financial trend. for the setting up of farmer producer organizations,
The level of impact on various macroeconomic and and promote investment in infrastructure facilities
social indicators varies in the Indian context. The through the agriculture infrastructure fund. The
apparent trend was significant as compared with present study is in concordance with similar findings
some of the Asian countries. GDP had a great fall, by Arunachalam et al. India’s hugely successful
followed by Singapore, Japan, and Russia. India’s efforts since 1991 to shore up its reserves are mostly
exports and imports suffered a major setback during in a basket of foreign currencies that are subject to
the pandemic. However, India achieved good success volatility and disruptions. Because the foreign market
in forex and estimated reserves held in US treasuries is uncertain and very dynamic in nature. Any change
at 255.1 billion US dollars. The unemployment rate in in a single component affects the foreign exchange
India was much higher during the pandemic period, reserves of the country. Forex reserves are the
and the capital markets became more volatile due to external asset used for financing external payments
the drastic low correlation in real estate. In a similar like export bills, debt payments, and intervention in
study conducted by Babshetti et al., the foreign exchange markets to affect the currency exchange
reserves of Vietnam’s currency have remained stable rate, remittance payments, and many other purposes
as compared with those of other Asian countries. .These foreign exchange reserves are controlled by
Therefore, the study concludes that, compared the RBI. According to RBI and IMF reports, Indian
to the other Asian nations, COVID-19 adversely foreign reserves showed exponential growth during
affected the Indian economy as well as the well- the COVID-19 pandemic due to several reasons, viz.,
being of the people on all fronts. The COVID-19 import sharing and the sharp fall in crude oil prices
pandemic notified by the WHO in January 2020 was from 60–70 dollars per barrel to 9–20 dollars per
the first challenge of the third decade that hit global barrel. About 20% of India’s import bill is received
growth. Two years later, as the global economy from crude oil, which has driven exponential growth
was recovering from the pandemic induced output and further foreign portfolio investment inflow. The
contraction, the Russian-Ukraine conflict broke out government’s decision in September to impose a
in February 2022, triggering a swing in commodity lower corporate tax rate has attracted huge foreign
prices and thus accelerating existing inflationary portfolio investment in India. The Report of the
pressure. This posed the second challenge. Soon RBI $15.10 billion in foreign portfolio investment
after, the third challenge emerged when nations jumped between April and December 2019 and May
undertook monetary tightening to rein in inflation, 2020, representing about $29.78 billion in FDI and a
causing growth to weaken. Monetary tightening fall in the gold price on the international market.

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Conclusion Aslam, Faheem, et al. "On the Efficiency of Foreign

The summing of the results concludes that the Exchange Markets in times of the COVID-19
Indian foreign exchange reserves at the global level Pandemic." Technological Forecasting and
are more impressive, and each quarter that shows an Social Change, vol. 161, 2021.
exponential trend (marginal growth 50-60%). India Babshetti, Vaijanath, et al. "The Impact of COVID-19
stands as the fourth largest country in the world. All on the Socio-economic Indicators of the
policy efforts and the intervention of flexible financial Selected Asian Countries." India Quarterly,
transactions led to an increase in forex reserves vol. 78, no. 1, 2022, pp. 28-46.
during the COVID-19 pandemic. The current forex Banerjee, Indrajit, et al. "Examining the Effect of
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Limitations Bouhali, Hamza, et al. "COVID-19 Contaminations
The present study had certain limitations; only and Forex Market: A DCC-garch
secondary data sets were used for model construction Graphical Approach." International Journal of
with a limited lag period to derive the model output. Innovative Science and Research Technology,
The imputation method was applied for missing vol. 6, no. 12, 2021, pp. 243-47.
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a limited scope (Less parameters were concerned) Pandemic, Foreign Exchange Rates, and
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Review, vol. 3, no. 2, 2020, pp. 1-9.
Acknowledgement Devika, P., and G. Brindha. "Study on the Effect of
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agency. Garg, Bhavesh, and K. P. Prabheesh. "The Nexus
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Author Details
D. M. Basavarajaiah, Karnataka Veterinary Animal and Fisheries Sciences University, Bidar, Karnataka, India,
Email ID: sayadri@[Link]

B. Narasimhamurthy, Former Scientist ‘G’ NIE, ICMR, Chennai, Tamil Nadu, India

M. D. Suranagi, Karnataka Veterinary Animal and Fisheries Sciences University, Bidar, Karnataka, India

36 [Link]