India is likely to gain $7-8 billion this year on surplus foreign exchange reserves invested by the Reserve Bank in central banks of other countries and International Monetary Fund (IMF), thanks to hardening global interest rates."During the year 2005-06 (July-June), the return on foreign currency assets and gold, after accounting for depreciation, increased to 3.9% from 3.1% during 2004-05, mainly because of hardening of global short-term interest rate," said a report on foreign exchange released by the Reserve Bank of India (RBI).The return of foreign exchange invested abroad by RBI, on behalf of Union government, fetched around $6 billion between July 2005 and June 2006 as interest.Interest rate earnings on foreign exchange reserves was merely 2.1% in 2003-04 and 3.1% a year later.Market analysts said with foreign direct investment expected to cross $20 billion this fiscal and rising flow of funds through NRI remittances and Foreign Insitutional Investors, India will soon be among the top league of countries with largest foreign exchange reserves. Foreign exchange reserves is already touching $219 billion.Earlier, Finance Ministry had asked RBI to lend $5 billion for investment in infrastructure sector for capital imports. The analysts said it would not be easy for the government to borrow funds from the RBI, as it has promised to offer higher returns than current returns.
