MUMBAI, April 6: India’s foreign exchange reserves soared past $54 billion in the last week of March, reflecting heavy inflows from foreign direct investments, exporter remittances and overseas deposits, analysts said.
Data released by the Reserve Bank of India (RBI) on Saturday showed the reserves stood at $54.154 billion as on March 29, 2002, up $837 million from a week ago.
The reserves have risen sharply through the month, with accretions between March 1-29 at $3.41 billion.
In financial year 2001/02 (April-March), the reserves rose around $12 billion.
March-end usually sees an increase in exporter remittances and foreign direct investments, and bulk of the recent inflows could be attributed to that, said Uday Mulgaonkar, associate vice president, at Kotak Mahindra Capital Company.
Also, the recent move to make all overseas Indians’ deposits freely convertible would have encouraged some deposit inflows.
In March, the entire accretion was in the currency component of the reserves which rose to $51.092 billion by March 29.
In the face of strong inflows, central bank intervention has kept the rupee from appreciating, dealers say. During 2001/02, the rupee depreciated by 4.5 per cent to 48.795/800. It closed Friday at 48.835/845.
Analysts said the reforms undertaken by the government had encouraged investment-related flows in 2001/02.
Specifically, the government raised the ceiling for foreign direct and portfolio investments in Indian firms and successfully privatised some state-run companies.
And, in the 2002/03 federal budget announced in February, it made all types of overseas Indians’ deposits in local banks fully convertible.
The hike in ceiling for direct investments prompted several buybacks, said Sanjeet Singh, analyst with ICICI Securities and Finance Company Ltd.
Of the $3.5 billion foreign investment in April-December (compared with $2.491 billion a year ago), around $1 billion could have come in for buybacks alone.
Private remittances also picked up after September 11, 2001.
The sluggish economic conditions also squeezed import demand. This, along with soft oil prices, truncated India’s import bill, Singh said.
For the first three quarters of 2001/02, the country’s current account deficit narrowed to $726m from $3.186bn in the previous year. The overall balance of payments recorded a surplus of $5.569bn compared with $2.735bn.
Oil prices have risen on account of the tensions in the Middle East and may remain firm if the global economic upturn gains in strength, Singh said.
And the import bill could also start swelling if the domestic economy picks up, he added. India’s farm sector is already showing signs of revival.
However, India’s reserves provide an import cover for around 13-14 months and will help to defend its currency if the need arises, Mulgaonkar added.—Reuters