India overtakes Russia as world's fourth largest forex holder after historic surge

India’s foreign exchange reserves have surged by a record $44.9 billion in a single week, catapulting the country past Russia to become the world's fourth-largest holder of foreign currency.

Data released by the Reserve Bank of India on Friday shows the country’s reserves reached a historic high of $785.71 billion in the week ended 4 September. Over the same period, Russia’s reserves fell by $20.7 billion to $753.5 billion, leaving India trailing only China, Japan, and Switzerland in the global rankings.

The unprecedented weekly gain is more than double the country’s previous record increase of $16.7 billion, set in August 2021. This sudden influx was driven by a rush of foreign currency deposits attracted by the central bank's concessional swap window.

The swap scheme rush

The main engine behind this surge was the Foreign Currency Non-Resident (Bank), or FCNR(B), deposit swap scheme. The RBI introduced this, along with two other schemes, in June to shore up foreign currency. It proved so popular that the central bank shut the window on 31 August—a full month ahead of its scheduled closure on 30 September.

By the time the window closed, it had drawn in $127.23 billion in FCNR(B) deposits. Two other RBI swap schemes—targeting overseas borrowings by banks and external commercial borrowings—brought in another $9.15 billion combined. In total, the special forex drive pulled in $136.38 billion between June and August.

These inflows have kept India’s reserves rising for ten consecutive weeks, giving the RBI significant firepower to defend the rupee against market volatility.

Some economists argue the central bank should keep building this war chest. Michael Patra, the former RBI Deputy Governor, wrote in March that India should aim for $1 trillion in reserves. He argued that such a milestone would comfortably cover short-term debt repayments and protect against sudden exits by foreign portfolio investors. "Punting against such a level should be beyond the reach of the opportunistic and/or the faint-hearted," Patra wrote.

Future payback worries

However, the rapid influx comes with a catch. The deposits and borrowings are not permanent capital; they are loans that India must eventually pay back.

Repayments on the FCNR(B) deposits are scheduled to begin in 2029. If foreign capital continues to flow into India over the next few years, meeting these obligations should be manageable. But some analysts are cautious. Sandeep Yadav, head of fixed income at DSP Mutual Fund, told the Indian Express in an interview that "structurally, nothing has changed in India to warrant more FX inflows" once these special schemes end.

Indeed, broader capital flows paint a more mixed picture. Foreign institutional investors have been net sellers of Indian equities and debt recently, pulling out $17.8 billion so far in 2026, following an $11.8 billion sell-off in 2025.

Net foreign direct investment has shown signs of recovery, reaching $12 billion in the first half of 2026 compared to just $3.1 billion across the whole of 2025. Yet this remains far below the levels seen earlier in the decade, such as the $53 billion recorded in 2020, as foreign firms repatriate profits and Indian companies invest more heavily abroad.

Furthermore, the central bank’s aggressive swapping of these dollar inflows has pushed its net short forward book—representing future obligations to sell dollars—to a record $137 billion at the end of June.