International BusinessShare of hot money in forex reserves up
The ratio of volatile capital flows, comprising cumulative portfolio investments and short-term debt, to India’s forex reserves moved up to 51.1 per cent at the end of March 2009 from 45.4 per cent a year ago. This ratio was 46.2 per cent at the end of March 2007.
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Bankers said though the ratio has shot up in FY09, it was hardly a concern as the outstanding level of foreign exchange was robust. After economic reforms began in 1991, India’s financial integration with global markets has gone up substantially. Foreign institutional investments play a crucial role in providing capital for the corporate sector growth.
The ratio of volatile capital flows to the reserves was 146.6 per cent at the end of March 1991. With expansion in the coverage of short-term debt, the ratio has further increased to 14.1 per cent at the end of March 2007 to 15.2 per cent at the end of March 2008 and increased further to 19.6 per cent at the end of March 2009, according to data from the Reserve Bank of India.
On deployment (investment) of the country’s currency assets, RBI said that of the total $241.4 billion, $134.8 billion was invested in securities, $101.9 billion was deposited with other central banks, the Bank of International Settlement (BIS) and International Monetary Fund (IMF).
A sum of $4.7 billion was placed in the form of deposits with foreign commercial banks and with external asset managers (EAMs).
A small portion of the reserve was assigned to EAMs to get the benefit of their expertise and market research, RBI said.
Referring to India’s gold reserves, RBI said it held about 357 tonnes of the yellow metal, forming about 3.8 per cent of the total foreign exchange reserves in value terms at the end of March 2009. Of these, 65 tonnes were being held abroad since 1991 in deposits/ safe custody with the Bank of England and BIS.
The import cover of reserves was 16.9 months at the end March 2004, which came down to 14.4 months at the end of March 2008 and further to 10.3 months at the end of March 2009. The reserve adequacy for import cover had fallen to a low of three weeks of imports at end the end of December 1990. It moved up to 11.5 months at the end of March 2002 and increased further to 14.2 months or about five years of debt servicing at the end of March 2003.