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.
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