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Journalism of Courage
MUMBAI, NOV 25: Foreign exchange reserves rose sharply in the week ended November 17 as more of state-run State Bank of India’s collections from a multi-billion dollar overseas deposit scheme entered the country. Data released by the Reserve Bank of India (RBI) on Saturday showed the country’s foreign exchange reserves rose by $1.664 billion to $37.077 billion.
The latest rise came on the heels of a $676 million increase the previous week, which was also attributed by analysts to inflows from the SBI overseas deposit offer. This is the first time since June that the foreign currency reserves have risen above $37 billion, but they are still off their all-time high of $38.341 billion hit in mid-April.
Reserves have been under pressure this year as the central bank moved to bridge a dollar demand-supply mismatch in the local currency market triggered by higher oil prices and slowing capital investments. At their lowest level this year, reserves were over 9 per cent off the mid-April peak.
Analysts said the increases were due to inflows from the SBI’s India Millennium Deposit scheme (IMD), which closed on November 6 after raising $5.5 billion from overseas Indians. "This looks like a tranche from the IMD scheme and the balance will flow in over the next two or three weeks," said an analyst.
Bankers say SBI was encouraged by the Reserve Bank of India (RBI) into launching the deposit scheme to bolster the country’s depleted foreign currency reserves.
Foreign investment inflows are also seen pushing up the country’s reserves beyond the current levels, analysts said. "I expect approximately $ 3-4 billion to come into the country by March next year on account of foreign direct investments and portfolio inflows," dealers said.
The opening up of the insurance sector was seen stoking a major chunk of these investments. "Once the disinvestment of state-run firms is out of the way the inflows will start to happen as most of the insurance joint ventures are already in place," analysts said.
India’s insurance market was opened up last year after the government passed legislation allowing foreign firms to own up to 26 percent of an Indian venture. But concerns over global oil prices continue to weigh.
Though prices are off their decade-highs posted recently, they are still above $30 per barrel and are viewed as too high. The country imports a large portion of its crude oil requirements and its import bill for 2000/01 (April-March) is expected to jump to $17.5 billion from last year’s $12.3 billion, based on an average price of $30 a barrel.
In the stock market, though foreign investors are unlikely to increase their commitments to India significantly, it is unlikely they will turn major sellers, dealers said. "Allocations for next year may not change and I don’t see them turning sellers in the remainder of 2000 as their positions have already been trimmed," dealers said.
Foreign funds have made net share purchases of $ 172.1million in November so far, despite selling equities worth $38.7 million in the last six trading sessions, data released by market regulator Securities and Exchange Board of India (SEBI) showed.
