Press Information Bureau

Government of India

Ministry of Finance

15-March-2012 12:38 IST

Forex Reserve at Us $ 293 Billion; External Debt Stock at US $ 326 Billion

Rupee Declines by 12.4 Per Cent Against Dollar on Month-to-Month Basis

Oil, Gold And Silver Prices Contribute to Modest Rise in Current Account Deficit

As India integrates into a seamless world, it cannot remain impervious to developments abroad. The unfolding of the Euro zone crisis and uncertainty surrounding the global economy have impacted the Indian economy causing drop in growth, higher current account deficit and declining capital inflows. Export growth has slowed in the third quarter of fiscal 2011-12, while imports remained high, partly because of continued high international oil prices. At the same time, foreign institutional investment flows have declined, straining the capital account and the rupee exchange rate. These and other details emerged in the Economic Survey 2011-12, presented by the Finance Minister, Shri Pranab Mukherjee in Lok Sabha today.

In the current fiscal 2011-12, on month-to-month basis the rupee depreciated by 12.4 per cent from 44.97 per US dollar in March 2011 to 51.34 per US dollar in January 2012. Rupee reached a peak of 43.94 on July 27, 2011, and lowest at 54.23 per US dollar on December 15, 2011 indicating a depreciation of 19 per cent.

During fiscal 2011-12, forex reserves reached all time high level of US $ 322.2 billion at end August 2011. However, it declined to US $ 292.8 billion at end January 2012 indicating a fall of US $ 12.0 billion from US $ 304.8 billion at end-March,2011. The decline in reserves is partly due to intervention by the Reserve Bank of India to stem the slide of Rupee against US dollar.

India’s external debt stock increased by US $ 20.2 billion (6.6 per cent) to US $ 326.6 billion at end-September 2011 vis-à-vis US $ 306.4 billion at end-March 2011, primarily on account of higher commercial borrowings and short-term debt. The long-term external debt at US $ 255.1 billion accounted for 78.1 per cent of the total external debt while the short-term debt was at 21.9 per cent. Government (sovereign) external debt stood at US $ 79.3 billion, while non-Government debt amounted to US $ 247.3 billion at end-September 2011.

The current account deficit was US $ 32.8 billion (3.6 per cent of GDP) in H1 of 2011-12, as compared to US $ 29.6 billion (k3.8 per cent of GDP) during the corresponding period of 2010-11. This was mainly on account of the trade deficit of US $ 85.8 billion (9.4 per cent of GDP) due mainly to increase in international prices of imported commodities viz oil and gold and silver. As per the latest data, export growth has slowed down in recent months while imports remained at elevated level, resulting in higher trade deficit.

The momentum gained in exports and imports during 2010-11 continued during the first half (H1-April-September 2011) of the current fiscal with exports recording 40.6 per cent and imports 34.3 per cent increase during H1 of 2011-12 over the corresponding period last year. Supportive government policy, diversification in terms of higher value-added products in engineering and petroleum sectors and destinations across developing economies were responsible for resilient export performance.

Net capital flows at US $ 41.1 billion (4.5 per cent of GDP) in the first half of 2011-12 remained higher as compared with US $ 38.9 billion (5 per cent of GDP) in the first half of 2010-11. FDI (US $ 12.3 billion) and external commercial borrowing (US $ 10.6 billion) have shown increasing trend during H1 of 2011-12 over the corresponding period of 2010-11. Portfolio investment, however, witnessed large decrease in inflow to US $ 1.3 billion in H1 of 2011-12 vis-a-vis US $ 23.8 billion in H1 of 2010-11.

According to the Economic Survey, a trade deficit of more than 8 per cent of GDP and current account deficit of more than 3 per cent is a sign of growing imbalance in the country’s BOP. High share of volatile FFI flows is an added external shock. The rupee’s high volatility impairs investor confidence, necessitating a more aggressive stand to check its volatility.

DSM/RM/BK/ska

Current account deficit and exchange rate volatility undermine balance of payments, prompting stronger intervention to stabilise rupee. The document reports a substantial rupee depreciation and corresponding Reserve Bank intervention that reduced foreign exchange reserves, an increase in external debt led by long term borrowings with a significant short term component, and a widened current account deficit driven by a larger trade deficit from higher international prices for oil, gold and silver and slower export growth; contemporaneous capital inflows shifted toward FDI and external commercial borrowings while portfolio investment collapsed, creating balance of payments vulnerability.