India?s
foreign exchange reserves have grown significantly since 1991. The
reserves, which stood at US$ 5.8 billion at end-March 1991, increased
gradually to US$ 141.5 billion by end-March 2005, US $ 151.6 billion by
end March 2006, US$ 199.2 billion by end-March 2007 and further to US$
309.7 billion by end-March 2008. It may be mentioned that foreign
exchange reserve data prior to 2002-03 do not include the Reserve
Tranche Position (RTP) in the IMF. An analysis of the sources of
reserves accretion during the entire reform period from 1991 onwards
reveals that the increase in foreign exchange reserves has been
facilitated by an increase in the quantum of cumulative net foreign
direct investment (FDI) from US $ 129 million in 1991-92 to US$ 59.2
billion in 2007-08.During 2007-08, net FDI amounted to US$ 15.5
billion.
FII investments in the Indian capital market, which
commenced in January 1993, have shown significant increase over the
subsequent years. Cumulative net FII inflows increased from US$ 1
million at end-March 1993 to US$ 66.6 billion at end-March 2008, net
accretion being US $ 20.3 billion during the year 2007-08. Outstanding
NRI deposits increased from US$ 14.0 billion at end-March 1991 to US$
41.2 billion as at end-March 2007. As at end-March 2008, the
outstanding NRI deposit stood at US$ 43.7 billion.
The Reserve
Bank of India appears to have shifted its deployment pattern of foreign
currency assets to other investment avenues. The report released by RBI
on 19 July stated its deposits with foreign banks and external asset
managers have come down considerably as on March 2008. At the same
time, deposits with other central banks, Bank for International
settlement (BIS) and IMF have increased substantially.
Investments
in securities have also gone up. Out of the $299.23 billion foreign
currency assets as on 31 March 2008, $103.56 billion were invested in
securities. The foreign currency assets are invested in multi-currency
multi-portfolio as per the RBI norms. As on 30 September 2007,
investments in securities were only $67.21 billion out of the total
foreign currency assets of 239.95 million then.
Deposits with
foreign commercial banks and external asset managers declined to $6.01
billion as on 31 March 2008 from $35.39 billion as on 30 September
2007. During the same period, deposits with other central banks, BIS
and IMF increased to $189.645 billion, from $137.348 billion.
As
per the report, the return on foreign currency assets, gold, after
accounting for depreciation, increased to 4.6% in 2006-07 from 3.9%
during 2005-06.
The forex reserves, which were barely enough to
meet the country?s imports for three weeks in 1991, were adequate to
cover more than 15 months? as on 31 March 2008. While the country has
enough forex reserves for meeting 15 months import requirements, its
current account deficit has been increasing in the last three years.
Current account deficit increased to $17.4 billion (1.5% of GDP) during
2007-08; this means the country?s imports exceed its exports. Also
there was no pre-payment of any debt during 2007-08.
The
significant increase in forex reserves enabled prepayment of certain
high-cost foreign currency loans of the Government of India from the
Asian Development Bank (ADB) and the International Bank for
Reconstruction and Development (IBRD) / World Bank. The total quantum
of prepayments was of the order of US$ 3.7 billion during 2003-04.
During 2004-05, prepayment of bilateral loan to the tune of US$ 30.3
million was made. During 2006-07, there was only one prepayment of US$
58.7 million in the month of April 2006 and non in 2007-08.
External Liabilities vis-?-vis Foreign Exchange Reserves
The
net IIP (Assets ? Liabilities) of India resulted in net claims of
non-residents to India (resulting largely from Portfolio & Direct
Investment in India and external commercial loans), which marginally
increased by US$ 1.23 billion to US$ 73.90 billion as at end-December
2007 from a level of US$ 72.67 billion as at end-September 2007. Among
external financial assets, the Reserve Assets increased by US$ 27.56
billion over the end-September 2007 and was at US$ 275.32 billion at
end-December 2007. The Direct Investment abroad witnessed an increase
of US $ 3.57 billion during the same period and was at US$ 38.95
billion as at end-December 2007. The Reserve Assets at US $ 275.32
billion exceeded the entire external debt (US $ 201.45 billion- as
published in External Debt Statistics of India, December 2007, MOF,
GOI) by US $ 73.87 billion as at end-December 2007.
Regarding
external financial liabilities, Portfolio Investment (mainly in Equity
Securities) and Direct Investment in India increased by US $ 16.08
billion and US $ 7.99 billion respectively, at end-December 2007 over
end-September 2007. Further, external commercial loans and trade
credits (under other investment head, which has a share of 44% in total
liabilities) increased by US $ 6.24 billion and US $ 3.78 billion
respectively during the same period. Whereas, Currency & Deposits
and Other Liabilities registered a fall.
Noticeable thing is
external commercial loans of other sectors, which are for long term has
shown highest increase by US $5.22 billion to US $45.750 billion as at
end-December 2007 .
External commercial loans to General
Government for long term increased by US $1.02 billion to US $49.793
billion, whereas loans to Banks have declined marginally to US $1.607
billion as at end-December 2007 from US $1.614 billion as at
end-September 2007.
Trade credits to General Government for long
term recorded a mere rise of US $15 million to US $1.125 billion as at
end-December 2007 over US $1.110 billion as at end-September 2007,
which was US $55 million higher than previous quarter figures. However,
Trade credits to other sectors recorded an impressive rise of US
$35.002 billion as at end-December 2007 higher by US $3.762 billion and
by US $7.002 billion over end-September 2007 and end-June 2007 figures
respectively.
The major share of total trade credit to other
sectors is recorded for short term at US $34.338 billion as at
end-December 2007, making the reserve built up vulnerable to shocks.
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