Explanations –

• An increase in imports relative to exports: A growing trade deficit due to higher imports compared to exports reduces foreign exchange reserves as more foreign currency is spent on imports than earned through exports.
• Depreciation of the domestic currency: Depreciation increases the cost of repaying external debts and importing goods. This leads to a higher outflow of foreign exchange, which can deplete reserves.
• Increased foreign portfolio investments (FPI) inflows: Increased FPI inflows bring foreign currency into the country, boosting forex reserves rather than depleting them.
• Repayment of external debt: Repaying external debt requires using foreign exchange reserves, especially when payments are made in hard currencies like the U.S. dollar, leading to a decline in reserves.

Source: The Hindu