Net capital flows double, NRI deposits up 188%

Net capital flows to India more than doubled to $27.34 billion in the first three quarters (April-December 2006) of the current fiscal against $13.43 billion in the same period last year.

Net capital flows to India more than doubled to $27.34 billion in the first three quarters (April-December 2006) of the current fiscal against $13.43 billion in the same period last year. This was largely due to a surge in external commercial borrowings (ECBs) and non-resident Indian (NRI) deposits.

Releasing the figures, the RBI said in a statement on the penultimate day of fiscal 2006-07, “Higher recourse to ECBs was enabled by the lower spreads on external borrowings and rising financing requirements for capacity expansion domestically.” As much as $9.1 billion came through ECBs against an outflow of $ 1.21 billion in April-December 2005.

NRI deposits surged by 188 per cent to $3.2 billion in April-December 2006 from $1.11 billion in the first three quarters last year. “Net inflows under NRI deposits during April-December 2006 were substantially higher than those a year ago, partly attributable to the higher interest rates offered,” the RBI said.

The ceiling interest rate on NRE deposits (repatriable rupee fixed deposits for NRIs) had been raised by 25 basis points in April 2006 to LIBOR/ SWAP rates of dollar plus 100 basis points and by 25 basis points on FCNR (B) deposits in March 2006 to LIBOR/ SWAP rates.

With respect to portfolio equity flows, the RBI said that foreign institutional investors (FIIs) made large purchases in the Indian stock market during August-November 2006, more than offsetting the outflows witnessed during May-July 2006. In December 2006, however, FIIs registered outflows against the backdrop of volatility in the Asian equity markets in the wake of Thailand’s tightening of capital controls.

On the whole, the net FII inflow in April-December 2006 ($5.1 billion) was lower than the figure for the same period last year ($8.1 billion). Resources mobilised through the issuance of American Depository Receipts (ADRs) and Global Depository Receipts (GDRs) abroad, too, remained buoyant.

The accretion to foreign exchange reserves was of the order of $16.2 billion on BoP basis (excluding valuation effects) during April-December 2006. The valuation gain, reflecting the appreciation of major currencies against the dollar, accounted for a rise of $9.4 billion in total reserves during April-December 2006 against a valuation loss of $6.1 billion during the corresponding period of the previous year.

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Taking into account the valuation gain of $9.4 billion, foreign exchange reserves recorded an increase of $25.6 billion in April-December 2006-07 (there was a decline of $4.3 billion in April-December 2005-06). As a result, India’s foreign exchange reserves are all set to cross the $ 200 billion mark.