Deployment of forex reserves in securities up 30%

Deployment of foreign exchange reserves of the Reserve Bank of India in securities has gone by 30 per cent while deposits with foreign commercial banks grew 130 per cent for the year ended March 31, 2004.

According to a RBI report on foreign exchange reserves for 2003-04, while foreign currency assets rose by 49 per cent to $107.44 billion as on March 31, 2004 from $71.89 billion last year, deployment in securities stood at $35.02 billion.

Deposits with foreign commercial banks figured at $26 billion. On the other hand, deposits with other central banks and Bank of International Settlement (BIS) have risen by 37 per cent to $45.87 billion.

During the year 2002-03 (July-June), return on foreign currency assets decreased to 2.8 per cent from 4.1 per cent during 2001-02, mainly because of lower international interest rates.

The foreign exchange reserves are invested in multi-currency, multi-market portfolios as per the existing norms, which are similar to international practices in this regard.

The ratio of short-term debt to foreign exchange reserves declined from 146.5 per cent at end-March 1991 to 6.1 per cent at end-March 2003 and further to 4.2 per cent at end-March 2004.

Similarly, the ratio of volatile capital flows (defined to include cumulative portfolio inflows and short-term debt) to reserves declined from 146.6 per cent as at end-March 1991 to 36.0 per cent as at end-March 2004.

An analysis of the sources of reserves accretion reveals that the increase in forex reserves has been facilitated by an increase in the annual quantum of foreign direct investment (FDI) from $129 million in 1991-92 to $4.7 billion in 2002-03.

Outstanding NRI deposits increased from $13.7 billion at end-March 1991 to $33.2 billion at end-March 2004. Cumulative net FII investments, increased from $827 million at end-December 1993 to $25.8 billion at end-March 2004.

Turning to the current account, India's exports which were $17.9 billion during 1991-92 increased to $61.7 billion in 2003-04.

Net invisible inflows increased from $1.6 billion in 1991-92 to $25.4 billion in 2003-04.