Sources of Accretion to Foreign Exchange Reserves in India : 2003-04 (April-March)

Press Releases Marquee

RbiAnnouncementWeb

Asset Publisher

Back

Published on June 30, 2004

LISTEN

PDF ( 10796 )

Sources of Accretion to Foreign Exchange Reserves in India : 2003-04 (April-March)

June 30, 2004

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. Subsequent to this, the RBI has been regularly updating and releasing information on ‘Sources of Accretion to Foreign Exchange Reserves’ through press releases which are available on the RBI website (www.rbi.org.in).

Balance of payments (BoP) data for the full financial year 2003-04 are now available. These data have been released on RBI website on June 30, 2004.

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

The following table shows the main components of accretion to foreign exchange reserves during 2003-04:

Table 1: Sources of Accretion to Foreign Exchange Reserves

(US $ billion)

Items			2003-04	2002-03
I.		Current Account Balance	8.7	4.1
II.		Capital Account (net) (a to f)	22.7	12.8
	a.	Foreign Investment	14.5	4.6
	b.	Banking Capital	6.2	8.4
		Of which: NRI Deposits	3.6	3.0
	c.	Short term credit	1.6	1.0
	d.	External Assistance	-2.7	-2.5
	e.	External Commercial Borrowings	-1.9	-2.3
	f.	Other items in capital account	5.0	3.6
III.		Valuation change	5.4	4.4
		Total (I+II+III)	36.8	21.3

Major sources of accretion to foreign exchange reserves during 2003-04 have been:

Foreign investment (39.4 per cent); comprising FDI (8.5 per cent) and portfolio investment (30.8 per cent);

Banking capital, which includes NRI deposits (9.8 per cent) and changes in foreign assets and other liabilities of commercial banks (7.1 per cent);

Short-term credit (4.4 per cent);

Other items under capital account which mainly reflect the difference between customs data on imports/exports and banking channel data (US $ 4.8 billion), external assistance (US $ -2.7 billion), rupee debt service (US $ -0.4 billion) and other transactions accounted for 13.6 per cent;

Valuation gain in reserves of US $ 5.4 billion (14.7 per cent).

It may be noted that significant changes are observed in the pattern of flows during 2003-04 from those during 2002-03:

The current account surplus increased to US $ 8.7 billion from US $ 4.1 billion in 2002-03.

There has been a significant rise in the net inflows through the capital account heads at US $ 22.7 billion as against US $ 12.8 billion in 2002-03.

During 2003-04, portfolio investment, non-resident deposits and short-term credit were major contributors to capital inflows.

Valuation changes, reflecting the appreciation of the Euro, GBP and Yen against the US dollar, accounted for US $ 5.4 billion of accretion to total reserves in 2003-04 as against a valuation gain of US $ 4.4 billion in 2002-03. 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 vis-à-vis the US dollar, there is an accretion to reserves by way of valuation gains. The reverse is the case when these currencies depreciate against the US dollar. During the year under review, Euro, Yen and GBP had appreciated substantially against the US dollar.