Fx kitty up $12 bn in 5 weeks

Q4 data to show current a/c surplus vs deficits in the preceding 2 quarters

India's foreign exchange reserves zoomed by over $12 billion in five weeks ending March 19.

According to banking sources familiar with Reserve Bank of India data, the major accretion has been on account of invisibles and external commercial borrowings (ECBs).

In invisibles, the areas that have contributed the most are private transfers, software and export-related services. In ECBs, the number of borrowers have gone up although funds raised are not very high.

The balance of payment data, yet to be released by the RBI for the fourth quarter of financial year ended March 2005, are likely to show a current account surplus as against deficits in last two quarters, said sources.

Non resident Indian (NRI) deposits' kitty, which has been drying down with net outflows, has started improving after the government decided to continue with the tax exemption in the last Union budget.

Under capital flows, portfolio investments stood at over $ 2 billion. While there has been positive accretion in the foreign direct investment, investment of around $900 million by Holcim was the largest FDI for the quarter, said sources. For the week ended March 25, the foreign exchange reserves stood at around $141 billion.

The comforting factor in the data is the fact that the foreign exchange inflows are no longer dependent on the interest rate sensitive flows like portfolio investments.

Although there has not been much growth in foreign institutional investor inflows, overall growth in the forex reserves has been phenomenal.

In the third quarter, the current account deficit continued further inflated by clocking $5.4 billion as against $4 billion in the second quarter 2004-05, according to the balance of payment data released by the Reserve Bank of India.

This has been due to steady expansion in trade deficit taking it to historic highs of $11.8 billion as against $9.8 billion in the second quarter.

The last BoP data showed that the capital account remains in surplus at $ 12 billion as against $ 4.6 billion , primarily due to surge in FII inflows, sharp rise in external commerial borrowings, short-term credits and overseas borrowings by banks.

While foreign investment has gone down to $7.3 billion as against $10.1 billion the same quarter last year, ECBs grew to $ 4.1 billion as against a negative accretion of $3.4 billion.

Short-term credit was at $ 2.7 billion. Non-resident Indian deposits, on the other hand, fell by $1.3 billion as against a growth of $3.7 billion.

The components boosting foreign exchange reserves during the third quarter were a 40 per cent growthh in foreign investment, 22.5 per cent growth in ECBs, 3.8 per cent growth in external assistance, 14.8 per cent growth in short credit.

Net invisibles were marginally down to $6.3 billion as against $7.2 billion in the corresponding quarter last year.