The Hindu Business Line : Forex reserves cross $100-b mark

FOR the first time ever in India's economic history, the country's foreign exchange reserves crossed the $100-billion mark to touch $100.048 billion, the Finance Minister, Mr Jaswant Singh, said today.

Over a decade ago, in 1991, India was written off as a basket case with two devaluations of its currency and less than $1 billion as reserves. The country had to pledge its family gold to meet its import obligations.

Today with the forex basket overflowing with dollars, the RBI and the Finance Ministry are struggling to stem the flow. India stands as a strong economy with its pockets jingling with dollars.

The credit for this stupendous achievement by any standard goes to four RBI Governors starting with Mr S. Venkitaramanan in 1991. Then came Dr C. Rangarajan by end-1992 with his report on forex management, still being the template for policy making by the central bank. In 1997, Dr Bimal Jalan walked in and had to battle an Asian currency crisis.

He kept India covered from any spillovers. Dr Y.V. Reddy, the fourth Governor, has the good luck to report the good news to the Finance Minister and the country.

In the latest weekly statistics released by the RBI, the foreign exchange reserves have inched up by a staggering $1.43 billion in a single week to touch $98.959 billion up from $97.520 billion for the week ended December 12, 2003.

The $100-billion figure is yet to be tabulated by the apex bank.

From the start of this calendar year, the kitty has surged by $28.207 billion or 39.87 per cent.

As on January 3, 2003, the holding was at $70.752, which has steadily increased to over $100 billion today.

In 2002, the addition to the reserves had been by a smaller quantum of $21.992 billion.

In this backdrop, the RBI has initiated many significant capital account liberalisation measures, pre-paid part of the foreign debt, and India has turned a lender to the IMF.

The unabated dollar inflow has led to the consistent appreciation of the Indian rupee despite mopping up of supplies by the central bank.

During 2003, the Indian rupee appreciated by 5.17 per cent to end the last trading session at 45.51/52 in its value against the dollar.

About 25 per cent of this dollar rain, i.e., $7.15 billion was due to the FII inflow into the domestic equity and debt markets.

Other large contributors include NRI remittances, FDI, revaluation of the basket of currencies, ECBs and export receivables.

NRI remittances remain a large contributor to the accretion to the kitty even today despite the repeated lowering of the interest rate on NRE deposits. The capping of NRE deposit rates by RBI has stopped only the arbitrage flows, which were being attracted by the higher interest rates on offer vis-à-vis developed markets.

Regular remittances from NRIs to their families in India are still a large amount and this continues steadily, explained a chief dealer in a foreign bank. "In the week gone by, RBI mopped up greenbacks brought in by FIIs and NRIs. There was also significant appreciation of the euro and the Pound Sterling by close to 1 per cent against the dollar," said a chief dealer in a foreign bank.

According to the RBI's latest statistics, the foreign currency assets increased by $1.439 billion to $94.918 billion while the gold reserves were steady at $4.036 billion and the special drawing rights at $3 million.

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