Sources of Accretion to Foreign Exchange Reserves in India: Updated Figures for April-September 2003

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প্ৰকাশ কৰা তাৰিখ ডিচেম্বৰ 31, 2003

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Sources of Accretion to Foreign Exchange Reserves in India: Updated Figures for April-September 2003

Background

The Reserve Bank of India (RBI) had, on January 31, 2003, issued a Press Note on conclusions of a study conducted by its Department of Economic Analysis and Policy (DEAP) on Sources of Accretion to Foreign Exchange Reserves during April-November 2002. Subsequently, on April 7, 2003, July 1, 2003 and September 30, 2003, the Reserve Bank updated the data through its Press Note on Sources of Accretion to Foreign Exchange Reserves for April-December 2002, fiscal year 2002-03 and April-June 2003, respectively. The Press Notes of January 31, 2003, April 7, 2003, July 1, 2003 and September 30, 2003 are available on the RBI website (www.rbi.org.in).

The actual balance of payments data for April-September 2003 are now available. These data have been released on the RBI website on December 31, 2003.

Sources of Accretion to Foreign Exchange Reserves in 2003-04 (April-September)

The following table shows the main components of additions to foreign exchange reserves during April-September 2003.

Table 1: Sources of Accretion to Foreign Exchange Reserves
(Figures are in thousand million US $)

Items

April-September 2003

April-September

2002

Current Account Balance

0.2

2.0

II.

Capital Account (net)

(a to e)

13.3

4.6

Foreign Investment

5.2

1.6

Banking Capital

3.1

2.5

Of which: NRI Deposits

2.0

1.5

Short term credit

2.2

0.3

External Commercial Borrowings

-0.3

-1.7

Other items in capital account

3.1

1.9

III.

Valuation change

1.8

2.0

Total (I+II+III)

15.3

8.6

Major sources of accretion to foreign exchange reserves during April-September 2003 have been:

Foreign investment (34.0 per cent); comprising FDI (11.1 per cent) and portfolio investment (22.9 per cent);

Banking capital, which includes NRI deposits (13.1 per cent) and changes in foreign assets and other liabilities of commercial banks (7.2 per cent);

Short-term credit (14.4 per cent);

Other items under capital account which mainly reflect the difference between custom data on imports/exports and banking channel data (US $ 2.2 billion), external assistance (US $ -0.2 billion), rupee debt service (US $ -0.3 billion) and errors and omissions (US $ 0.4 billion) accounted for 20.3 per cent; and

Valuation gain in reserves of US $ 1.8 billion (11.8 per cent).

It may be noted that significant changes are observed in the pattern of flows during the period April-September 2003 from those during the period April-September 2002:

The current account surplus declined to US $ 0.2 billion during April-September 2003 from US $ 2.0 billion during April-September 2002.

There has been a significant rise in the net inflows through the capital account heads at US $ 13.3 billion during April-September 2003 as against US $ 4.6 billion in April-September 2002.

There has been significant increase in capital flows from investment by foreign institutional investors (FIIs), short-term credit and non-resident deposits.

Valuation changes, reflecting the appreciation of the Euro, GBP and Yen against the US dollar, accounted for US $ 1.8 billion of accretion to total reserves in April-September 2003 as against a valuation gain of US $ 2.0 billion in April-September 2002. While the Reserve Bank denominates its forex reserves in terms of US dollars, these comprise a basket of major international currencies, particularly US dollar, Euro and Pound Sterling. Accordingly, when non-US dollar currencies appreciate in terms of US dollar, there is accretion to reserves by way of valuation gains. The reverse is the case when these currencies depreciate against the US dollar. During the period under review, Euro and GBP had appreciated substantially against the US dollar. (This is excluding the appreciation of value of gold, which is not considered for compilation of balance of payments).