India pulled ahead as Russian holdings declined at a faster rate in recent weeks as the Reserve Bank of India RBI continues to hoard dollars to cushion the economy against any sudden outflows.

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India's foreign-exchange reserves have become the fourth largest in the world, surpassing Russia. China has the largest foreign currency reserves followed by Japan and Switzerland.

India pulled ahead as Russian holdings declined at a faster rate in recent weeks as RBI continues to hoard dollars to cushion the economy against any sudden outflows. India's foreign-exchange reserves, which is sufficient to cover around 18 months of imports, have been boosted by current-account surplus, rising inflows into the foreign direct investments and the domestic stock market.

Kaushik Das, chief India economist at Deutsche Bank, before the latest data was released, said: "India's various reserves adequacy metrics have improved significantly, particularly in the last few years. In order to pay for its import bills, almost every country maintains a reserve of foreign exchange forex. For any developing country, what should be the adequate level of forex reserves is a very subjective question.

Around two decades back, the forex reserve which could finance the imports of three to six months was considered adequate but the change in global trade and finance patterns have changed the adequacy norms for forex reserves. Now the adequacy norms not only covers import bill but also factors in percentage of reserves to short-term debt, as a proportion of external debt, ratio of reserves to GDP, as percentage of current account deficit CAD and inflow and outflow variations from the capital account.

Judging by any factor, the forex reserves in India are currently more than sufficient. Because of the aforesaid reasons, almost all countries particularly developed hold high level of foreign exchange reserves despite the high cost of holding it.

Forex Reserves and Their Benefits. Read General Awareness Topic: Forex Reserves and Their Benefits For anything to qualify as money, it must possess three important characteristics - the store of value, medium of exchange and general acceptability.

It helps in boosting the confidence of the market in the ability of a country to meet its external obligations. It acts as cushion for unforeseen external shocks.

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It was due the adequate forex reserve level that India was able to bear the global meltdown of Increases confidence of foreign investors and thus helps in boosting foreign direct investment FDI. RBI uses the forex reserves to adjust foreign exchange rate.