Forex reserves rise 17 pc in 1999-2000, cross $ 38 billion

Forex reserves rise 17 pc in 1999-2000, cross $ 38 billion
ENS ECONOMIC BUREAU

MUMBAI, APRIL 8: Foreign exchange reserves of the country have jumped by $ 503 million to $ 38.036 billion in the week ended March 31, 2000, compared to the previous week. This represents a rise of nearly 17 per cent during the last financial year, boosted by heavy foreign investment flows into the country.

Forex reserves have gone up by a whopping $ 5.5 billion from $ 32.535 billion on April 1, 1999. Bankers now expect the reserves to cross the $ 40 billion mark by June 2000.

The robust growth in reserves was on account of foreign currency assets increasing by $ 633 million to $ 35,058 million during the week, according to Reserve Bank of India's weekly statistical supplement here today. Gold reserves of the country during the week, however, declined by $ 130 million to $ 2,974 million.

A major reason for the rise in forex reserves is the higher inflows of funds through the foreign institutional investment (FII) route. Foreign investors have been putting more money in Indian stocks despite the 361-point crash in BSE Sensex last week. FII inflows are expected to pick up when Indian markets start derivatives trading later this year.

The country's reserves surged more than $ 2 billion just inthe month of March 2000, which dealers said was explained by the central bank's continuous intervention in foreign exchange market through state-owned banks.

Analysts said the rise in the RBI's foreign exchange assets during the year had been spectacular, and probably among the highest in recent years. The currency assets rose $ 5.49 billion during 1999/2000 (April-March) compared with just over $3.4 billion the previous year.

Flows comprised not just portfolio flows but also direct equity investments, analysts said. Foreign funds invested over $1.5 billion in Indian debt andequity markets in 1999. Investments in March were just $378 million, but total investments in 2000 so far have crossed $1.3 billion.

Foreign direct investment (FDI) flows were estimated at $ 3 billion in April-September 1999 and the government hopes to attract around $10 billion a year. Indian firms tapping overseas equity markets are expected to bring in at least $4 billion in the early part of 2000/01.

The inflows last year not only explained the surge of liquidity into Indian bond and equity markets during the year but probably reflected the attractiveness of the new technology-driven economy, analysts said.

"The inexorable rise in forex reserves, more than anything else, explains why Indian equity markets have surged, bonds have rallied remarkably and the rupee has been rock solid in 1999/2000," said Vasan Shridharan, treasury economist at Standard Chartered bank.

The Indian rupee lost just 2.7 per cent in 1999/2000. The rupee is convertible only on the current account and was fairly stable even during a border conflict in Kashmir and federal elections last year. Bankers expect the rupee's stability to be sustained through the current year and the central bank to continue intervention to arrest any appreciation.