Search the Internet          Tips  Sites: Finance, Investment

India's forex reserves fall to $42.654 billion

India's foreign exchange reserves dropped off record highs to $42.654 billion in the week ended April 27, breaking a four week rising spell, the Reserve Bank of India said on Saturday.

The reserves fell $111 million during the week from an all time high of $42.765 billion on April 20.

But analysts were not worried about the decline and said India's foreign exchange reserves were at comfortable levels.

"The fall may be just due to the euro's and yen's weakness against the dollar in the period," said an economist at a foreign bank.

India's foreign currency assets expressed in dollar terms include the effect of appreciation or depreciation of non-US currencies like the euro, sterling and yen, held in reserves.

The reserves have risen almost continuously since the end of 2000 helped by foreign capital inflows and the $5.5 billion raised from expatriate Indians through the Millennium Deposit Scheme last November.

Foreign currency inflows are seen stable from rising portfolio inflows from foreign funds investing in India.

Foreign institutional investors have poured in over $2.16 billion in Indian stocks and bonds so far this year compared to $1.57 billion in 2000.

WEAKENING INDUSTRIAL GROWTH

But the strong reserves position comes against the backdrop of weakening industrial growth and slowing foreign direct investment.

Investments by foreign companies in India rose in 2000 to $2.6 billion, but it still remained an insignificant 0.24 per cent of nearly $1.1 trillion global FDI flows during the year.

Exports growth too is under pressure due to the demand slowdown in the United States and Japan, India's two main export markets. Analysts see exports growth this year lower than the dazzling 19.83 per cent recorded for the year ended March.

Meanwhile industrial growth is also sluggish, as shown by the lower rate and weak import growth.

The rate of industrial growth dropped to 5.1 per cent in the first 11 months of the past fiscal year from 6.5 per cent in 1999/00. In February alone, growth slowed to just 0.6 per cent down from 8.2 per cent a year earlier.

Imports in the year to March grew just 0.27 per cent.

The government in its Budget in February took steps to kick-start industrial growth by announcing several bold measures targeted at simplifying labour laws, streamlining the tax structure and privatising state-run firms.

The central bank, the Reserve Bank of India, followed the reform-oriented budget with a bank rate cut to seven per cent in March, which analysts say should boost capital investments and economic growth. The RBI expects India's gross domestic product to grow 6.0-6.5 per cent in the current year, a shade above the six per cent estimated for the past year.

Tell us what you think of this report