Is it time to worry about India’s foreign exchange reserves?

Good morning. The US president’s visit to China kicked off yesterday in Beijing. Xi Jinping warned Donald Trump that the “Taiwan question” was critical to US-China relations, and that it could lead to “conflict” if badly managed. Xi also praised progress in trade talks, highlighting that there would be “no winners” in a tariff war. Trump is accompanied by a delegation of US chief executives including Apple’s Tim Cook, Nvidia’s Jensen Huang, Tesla’s Elon Musk and Citigroup’s Jane Fraser. The two leaders are also scheduled to have a “final private meeting” on Friday: stand by for more announcements.

In today’s newsletter, the Indian government has approved a near $4bn plan for coal gasification as the country figures out avenues for energy autonomy. But first, is it time to worry about the country’s foreign exchange reserves?

Modi’s latest austerity call is about foreign reserves

Prime Minister Narendra Modi’s appeal to Indians to embrace austerity measures has rung alarm bells about the country’s foreign exchange reserves — a vital resource for paying for imports and supporting the value of the rupee. How dire is the situation if Indians have to tighten their belts and avoid foreign travel and gold purchases?

According to data from the Reserve Bank of India, the country’s foreign exchange reserves stand at $690bn, down from a record high of $728bn in February 2026. While India has one of the largest reserves in the world — often ranked fifth — the tension this week emerged from a perfect storm of factors.

Let’s look at the outflows first. Top of the list is the energy bill. India is the world’s third-biggest energy importer and relies on other countries for 90 per cent of its oil and 60 per cent of its gas. In the year to March 31, the country had spent $174bn on energy imports. Gold imports totalled $72bn for the same period, up almost a quarter in value on the previous year, while silver imports surged by nearly 150 per cent to $12bn. Fertiliser imports rose 77 per cent to $14.6bn in the last financial year. 

Across these four commodities alone, India’s import bill has more than doubled in four years, as prices rose and domestic demand grew. This is precisely why the government wants to apply the brakes now.

On inflows, the story is equally concerning. As we wrote last week, foreign portfolio investors have been exiting the Indian market — meaning they are not only withholding fresh dollars, but actively withdrawing what was previously invested. In the past two months, foreign portfolio investors have pulled out $21bn from India, adding to the $18bn they withdrew last year. 

The picture on foreign direct investment is only marginally better. While gross FDI has been increasing, net FDI was negative for the six months to February, meaning foreign direct investors too were pulling out more from their capital investments than they were bringing in.

On international trade, India continues to import more than it exports. The country’s trade deficit swelled to nearly $120bn in the year to March 31, up from $95bn the previous year. Trump’s tariffs remain a drag on exports to the United States, and although the commerce ministry has negotiated several free trade agreements in the past 12 months, very few have reached the stage of implementation.

The one bright spot is remittances from Indians living abroad, which bankers say have not significantly changed since tensions escalated in the Middle East — a major source of inward flows.

With outflows high and inflows trickling, it is understandable why the government has now hit the panic button. Curtailing gold imports is the least painful way to preserve foreign exchange reserves. The government is trying to delay raising fuel prices, wary of the broader economic fallout. India’s wholesale inflation zoomed to 8.3 per cent in April, according to data released yesterday — its fastest rise in nearly four years, and up from 3.86 per cent in March. Any increase in fuel prices would push that number further still.

Meanwhile, Modi is stopping in the UAE today as part of a five-day, five-nation tour. A major announcement with any immediate bearing on India’s ability to source or secure safe passage for crude oil seems unlikely. The more consequential news on that front will probably come from Donald Trump’s current visit to Beijing. For now, India can only wait and watch — and hope things turn around before foreign exchange reserves fall to truly alarming levels.​​​​​​​​​​​​​​​​

Do you think India has enough reserves to weather the current crisis? Hit reply or email me at [email protected]

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Government’s $4bn bet on turning coal into gas

The government on Wednesday approved a near $4bn scheme to set up and promote coal gasification projects. These aim to convert coal into synthetic gas that can be used across several energy-intensive industries, including power generation, fertiliser manufacturing and petrochemicals. The move is part of India’s broader efforts to attain greater energy autonomy.

The scheme offers government financial assistance of up to 20 per cent of the cost of setting up a plant, capped at Rs50bn per project, Rs90bn per product category, and Rs120bn for a corporate group. This builds on an earlier scheme launched in 2024. Government estimates suggest that, at 401bn tonnes, India holds one of the largest coal reserves in the world, and the aim is to gasify some 75mn metric tonnes annually.

Shares of state-owned mining major Coal India shot up on the news. Others including engineering company BHEL, gas and lignite majors GAIL and NLCIL, and large conglomerates like Jindal — which have significant investments in the energy sector — will also get a fillip from the announcement.

The gasification process is essentially one in which coal reacts with oxygen and water under high temperature and pressure to produce synthetic gas, which can then be processed for industrial and energy applications. That said, there aren’t too many compelling examples of scaled gasification projects around the world. Environmentalists also warn that finding new uses for coal only prolongs its usage — and the pollution that comes with it — and that the focus should instead be on cleaner alternatives.

For India, there are no easy answers. Around 60 per cent of the country’s natural gas consumption is met through imports, placing a significant strain on its trade balance, and recent events have further exposed supply vulnerabilities. At the same time, the country continues to battle persistently rising levels of air pollution. This is yet another of the many devil-and-the-deep-sea dilemmas that India finds itself navigating.

Go figure

Inflation is going up. The wholesale price index, as mentioned earlier, came in at 8.4 per cent for April, a 42-month high. Here are some more details from the data released this week.

Read, hear, watch

I am reading London Falling by Patrick Radden Keefe. At 2.23am on November 29 2019, a 19-year-old boy jumped to his death from a balcony in central London’s luxury Riverwalk residential complex. Keefe uses this as his starting point to investigate moral decay in London. I had read his 2024 reportage about this incident in the New Yorker and enjoyed that too.

Buzzer round

The brother of an Oscar-winning director, name the person who shares his surname with a genus of flowering plant and a species of long-necked dinosaur named in his honour. Hint — he recently celebrated his 100th birthday. 

Send your answer to [email protected] and check Tuesday’s newsletter to see if you were the first to get it right.

Quick answer

On Tuesday, we asked you to predict what a fuel price increase would be. Here are the results: 48 per cent of you expect a 10-15 per cent rise.

Thank you for reading. India Business Briefing is edited by Stephen Harris. Please send feedback and suggestions (and gossip) to [email protected].