A decline in capital inflows as a result of the ongoing global financial turmoil may see India’s foreign exchange (forex) reserves depleting by $39 billion during 2008-09, says a report by global banker Goldman Sachs.
The country’s foreign exchange reserves, which were around $310 billion in March 2008, have been declining steadily and may go down to $271 by the close of the current financial year, the report said.
The decline would mainly be on account of rising current account deficit, it said, adding, “Capital inflows fell to $13.2 billion (in the first quarter of 2008-09) from $17.3 billion in the same period of 2007-08 and $25.4 billion in the previous quarter (January-March).”
According to the latest RBI data, the country’s foreign exchange reserves declined to $292 billion as on September 19, 2008, which can be attributed to a higher trade deficit and declining portfolio investment.
Pointing out that the current account deficit will remain high during the year, the Goldman Sachs report said, “It would be a bigger concern with oil at $150 a barrel than at current prices.”
It further added, “With oil prices coming off substantially, one of the biggest threats to the current account deficit has been alleviated.” Even in the event of a sudden stop in capital flows, the report said, the country’s buffer of forex reserves would be sufficient to fund the current account and external debt payments.
