India is likely to gain $7-8 billion this year on surplus foreign exchange reserves invested by the Reserve Bank of India in central banks of other countries and International Monetary Fund (IMF), thanks to hardening global interest rates.

“During the year 2005-06 (July-June), the return on foreign currency assets and gold, after accounting for depreciation, increased to 3.9 per cent from 3.1 per cent during 2004-05, mainly because of hardening of global short- term interest rate,” said a report on foreign exchange released by the Reserve Bank of India (RBI).

The return of foreign exchange invested abroad by RBI, on behalf of Union government, fetched around $6 billion between July 2005 and June 2006 as interest. Interest rate earnings on foreign exchange reserves was merely 2.1 per cent in 2003-04 and 3.1 per cent a year later.

Top league
Market analysts said with foreign direct investment expected to cross $20 billion this fiscal and rising flow of funds through NRI remittances and Foreign Insitutional Investors, India will soon be among the top league of countries with largest foreign exchange reserves. Foreign exchange reserves is already touching $219 billion.

Earlier, Finance Ministry had asked RBI to lend $5 billion for investment in infrastructure sector for capital imports. Analysts said it would not be easy for the government to borrow funds from the RBI, as it has promised to offer higher returns than current returns.

Apart from India, China, whose forex reserves have crossed $1 trillion, has also parked a major chunk of its surplus reserves in US securities and other countries.

As on March 31 this year, out of around $200 billion, the central bank had invested as much as $191.9 billion in foreign currency assets, and $6.7 billion in gold deposits.

RBI, which recently received about Rs 35,000 crore from the government for transferring its share in the State Bank of India last month, is expected to hand over a hefty check from its surplus to the Finance Ministry next month.