On the back of robust foreign inflow due to sub-prime and other crises in the West, India’s foreign exchange reserves are expected to rise by $100 billion to touch $300 billion mark by the end of current fiscal, Institute of Economic Growth (IEG) has said.
“We expect such flows to continue especially as foreign funds are now diverted to safe havens such as India, following uncertainty about extent of impact due to sub-prime crisis and potential recessionary signals emanating from US economy,” IEG said in its monthly monitor.
Drop in foreign assets
“Forex reserves are to reach $300 billion by the end of March 2008,” the report projected. However, for the week ended December 21, forex reserves witnessed a decline of $232 million to touch $272.72 billion, primarily as a result of drop in foreign currency and assets collections.
As per the weekly statistical supplement of the Reserve Bank of India (RBI) released on December 28, foreign currency and assets dropped by $230 million to $263.93 billion. Since the beginning of the calendar year, forex reserves have bulged more than 55 per cent, second highest after Brazil among the BRIC nations. Brazil’s foreign exchange reserves jumped by 106 per cent to $178.8 billion as on December.
Fed rate cut
Rate cut by the Fed in the US along with the positive perception prevailing about the emerging economies such as India has led to sharp rise in inflows, it said.
In percentage terms, the accretion would amount to a growth of over 50 per cent on year-on-year basis. The country’s forex stood at $199.1 billion for the year ended 2006-07.
As far as India’s share in worldwide foreign exchange market is concerned, the turnover has grown to 0.9 per cent this year, marking a three-fold jump from just 0.3 per cent in 2004.
According to data compiled by Switzerland-based Bank for International Settlement (BIS), this is the fastest increase in market share for any other country in the world.
Besides highest three-fold jump in market share, India also recorded the second highest growth in the daily average forex market turnover after China.
