During April-September 2010, there was an accretion to the foreign exchange reserves in BoP terms (i.e. excluding valuation effects). The sources of variation in the foreign exchange reserves are set out in Table 1.
Table 1: Sources of Variation in Foreign Exchange Reserves |
(US $ billion) |
Items | 2009-10 | 2010-11 |
| April-September | April-September |
I. | | Current Account Balance | -13.3 | -27.9 |
II. | | Capital Account (net) (a to f) | 22.8 | 34.9 |
| a. | Foreign Investment (i+ii) | 30.3 | 29.1 |
| | (i) Foreign Direct Investment | 12.3 | 5.3 |
| | (ii) Portfolio Investment | 17.9 | 23.8 |
| | Of which: | | |
| | FIIs | 15.3 | 22.3 |
| | ADRs/GDRs | 2.7 | 1.6 |
| b. | External Commercial Borrowings | 0.7 | 6.0 |
| c. | Banking Capital | 1.0 | 0.8 |
| | of which: NRI Deposits | 2.9 | 2.2 |
| d. | Short-Term Trade Credit | -0.05 | 6.7 |
| e. | External Assistance | 1.0 | 3.0 |
| f. | Other Items in Capital Account* | -10.2 | -10.7 |
III. | | Valuation Change | 19.8 | 6.8 |
| | Total (I+II+III) @ | 29.3 | 13.8 |
Note:*: (i) 'Other items in capital account' apart from 'Errors and Omissions' also include SDR allocations, leads and lags in exports, funds held abroad, advances received pending issue of shares under FDI and transactions of capital receipts not included elsewhere.
(ii) Increase in reserves (+) / Decrease in reserves (-).
@: Difference, if any, is due to rounding off. |
On a balance of payments basis (i.e., excluding valuation effects), the foreign exchange reserves increased by US$ 7.0 billion during April-September 2010 as against an increase of US$ 9.5 billion during April-September 2009. The foreign exchange reserves (including the valuation effects) increased by US$ 13.8 billion during April-September 2010 as compared with an increase of US$ 29.3 billion during April-September 2009 (Table 2).
Table 2: Comparative Position |
(US$ billion) |
Items | 2009-10
April-September | 2010-11
April-September |
1. | Change in Foreign Exchange Reserves
(Including Valuation Effects) | 29.3 | 13.8 |
2. | Valuation Effects
(Gain (+)/Loss (-)) | 19.8 | 6.8 |
3. | Change in Foreign Exchange Reserves on BoP basis
(i.e., Excluding Valuation Effects) | 9.5 | 7.0 |
4. | Percentage of increase/decline in Reserves
explained by Valuation Gain/Loss | 67.7 | 49.3 |
Note: Increase in reserves (+)/Decrease in reserves (-). |
The valuation gains, reflecting the depreciation of the US dollar against major currencies, accounted for US$ 6.8 billion during April-September 2010 as compared with valuation gains of US$ 19.8 billion during April-September 2009. Accordingly, valuation gains accounted for 49.3 per cent of the total increase in foreign exchange reserves during April-September 2010.
Alpana Killawala
Chief General Manager
Valuation effects drove nearly half of the foreign exchange reserve change, reducing reliance on balance of payments flows. Reserves increased on a BoP basis as net capital account inflows - led by foreign investment (FDI and portfolio), external commercial borrowings, short term trade credit and external assistance - partly offset a larger current account deficit; valuation gains due to currency movements materially affected the headline increase but were smaller than in the prior year.
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