# How is India able to increase its foreign exchange reserves despite historically running a trade deficit?

Balance of Trade: https://tradingeconomics.com/india/balance-of-trade

Foreign Exchange Reserves: https://tradingeconomics.com/india/foreign-exchange-reserves

Remittances do help (avg. \$4B/mo) but are not enough to offset the trade deficit (avg. \$15B/mo).

India Remittances: https://tradingeconomics.com/india/remittances

Please note that the time scales in the above charts are not the same.

• Hi CodeWarrior, welcome to Economics.SE. Please consider taking the tour. And furthermore, it would appreciated if you could summarise the content of those links. Web pages may disappear or move. Thus rendering your links and a large part of your question, moot. – clem steredenn Aug 23 at 7:01

## 2 Answers

The central bank's accounts are not the same as entire country's accounts.

The foreign currency reserves statistic comes from the Reserve Bank of India, the central bank, when it discloses its account. The trade deficit is not a property of the central bank's accounts, although the central bank might have economists producing that statistic. The trade deficit is a property of the entire country in aggregate, which includes household, business, and government trade activity.

• That was pretty ignorant of me to conflate the two. Having said that, its still not clear how a country's central bank can increase its FX reserves while its federal govt. runs a trade deficit. Can you recommend some sources where I can learn more about a central bank's P&L? – CodeWarrior Sep 1 at 22:04
• The central bank issues a currency and it can use it to buy foreign currency. RBI annual reports rbi.org.in/Scripts/AnnualReportPublications.aspx?year=2017 – H2ONaCl Sep 3 at 8:33

I saw somewhere that it's largely down to Indian employees abroad sending much of their earnings home, but I don't have the link to hand.