Foreign Exchange

Foreign Exchange reserves and Foreign Direct Investments

HERE’S yet another indicator that the Indian economy is in good shape. According to the figures released by the Reserve Bank of India (RBI), the total foreign exchange reserves in the country including gold and SDR went up to over $203 billion in April 2007, thus reaching a new high.

Worldwide Foreign Exchange Reserves (Including Gold and SDR)
Source - International Monetary Fund, 12 August 2006

Country	Reserves (in billions)
China	$941.10
Japan	$871.94
Taiwan	$260.37
Russia	$243.20
S. Korea	$225.72
India	$164.02
Singapore	$129.90
Hong Kong	$127.40
USA*	$65.04
France*	$62.59
Germany*	$42.77

The spurt in the forex reserves is mainly due to two factors. Firstly, FII inflows into the country have been robust. Secondly, economists say that the unutilised aid limits are exhausted by the year end, as a result of which, forex inflows tend to spurt during the period. FII inflows were at $7.3 billion for the period January 2005 till August 2005.

India leads the world in remittances - With recorded inflows of $21.7 billion in 2004, India received the most in terms of remittances worldwide, according to a World Bank Global Economic Prospects (GEP) report of November 2005. Remittances sent to India were by overseas workers who account to about 20 million.

March year-end	Total NRI deposits outstanding (US $ Billion)
1991 1998 2000 2003 2004 2006	13.99 20.37 21.68 28.27 33.27 35.13

India has displaced the U.S. to become the second-most attractive destination for foreign direct investment (FDI) among manufacturing investors, as per AT Kearney's FDI Confidence Index rankings, released on 15th August 2005. Against China's index of 2.03, India ranked marginally behind the U.S. at 1.4, against the latter's 1.45. The U.S. National Intelligence Council's study also identifies India as the new economic star of the 21st century along with China. This explains the eight-fold rise in FDI inflows into India over the last decade.

Foreign Direct Investment, 2006
Source: Reserve Bank of India
(Does not include portfolio investments)

1990-98	1998-2003	2004-06
US$ 10.6 billion	US$ 13.43 billion	US $17.73 billion

Since the beginning of year 2005 (as of 9 December 2005), the FDI for India’s IT and Telecom sectors has reached a record $9 billion. While telecom will attract $2.5 billion, IT will attract the remaining $6.5 billion. US' Direct Investment in India was $3.678 billion in the year 2002 (worldwide total of $1520.96 billion) compared to $1.402 billion in 1999 (worldwide total of $1130.79 billion).

Total Foreign Investment Inflows, 2006
Source: Reserve Bank of India
(Includes direct and portfolio investments)

1990-98	1998-2003	2004-06
US$ 26.53 billion	US$ 28.54 billion	US $50.91 billion

Year	Indian Rupee (annual averages)
1970 1975 1980 1985 1990 1991 1992 1993 1994 1995 1996 1997 1998 2000 June 2002 Jan 2004 Aug 2005 Jan 2006 Apr 2007	7.576 8.409 7.887 12.369 17.504 22.742 25.918 30.493 31.374 32.427 35.433 36.313 41.259 45.0 49.04 45.6 43.45 44.04 41.01

The Indian rupee is significantly, albeit not fully, convertible for current account balances. By and large, the Indian exchange control regime is flexible to allow the market to play an important role in the determination of the exchange rate. The Report of the Committee on Capital Account Convertibility has laid down a road map with specific qualifying criteria for the economy to satisfy in order to make a successful transition to full convertibility.