Forex reserves to touch $150 bn

Important milestone on way towards full rupee float.

India's foreign exchange reserves are set to touch the $150-billion mark in 2005-06 that drew to a close today amid rapid accretion to foreign currency assets over the last few weeks.

Hitting the psychologically important $150-billion mark is significant against the backdrop of Prime Minister Manmohan Singh's recent push for a clear road map for making the rupee fully convertible.

One of the major preconditions of capital account convertibility, laid down by the first Tarapore Committee report, is adequate forex reserves.

At this level, the reserves are significantly higher than the country's external debt, which, at the end of December 2005, was to the tune of $119.2 billion. The reserves are also enough to finance imports for 14 months.

The rise in foreign exchange reserves in the five weeks ended March 24 was $7.41 billion, taking the total reserves to $148.66 billion.

"Considering the fact that foreign exchange reserves have risen by an average of $1.48 billion over the last few weeks, the reserves have certainly touched the magic figure of $150 billion on March 31," said a foreign exchange expert.

The Reserve Bank of India will reveal the year-end figure next Friday.

The year-on-year increase in forex reserves was $7.77 billion, almost identical to the rise during the five weeks beginning February 17. The reserves had fallen by $4.3 billion in the nine months ended December 2005 on account of a $6.1-billion valuation loss.

India's current account deficit narrowed to $3.85 billion in the October-December 2005 quarter from $5.44 billion a year ago, but analysts said the improvement was unlikely to be sustained.

The RBI data, released today, said a higher net invisibles surplus of $8.17 billion in October-December 2005 against $6.29 billion a year ago led to an improvement in the current account deficit.

The current account deficit in the first nine months of 2005-06 was $13.47 billion against $5.92 billion in 2004-05. The current account had a deficit of $5.4 billion in the whole of 2004-05, the first in four years.

The invisible receipts "" travel earnings, business and professional services, software services and remittances by Indians residing abroad "" grew by 31.3 per cent in October-December 2005 from a year ago.

The spurt in remittances from overseas Indians could be possibly due to ploughing back of a part of the redemption proceeds of the India Millennium Deposits (IMDs), the RBI said.

Investment bank JP Morgan, in a report, said the improvement in the current account deficit in the third quarter of 2005-06 was unlikely to be sustained because of a strong domestic demand and rising global crude oil prices, both of which would increase the merchandise trade deficit.

JP Morgan has maintained that the current account deficit for the full year 2005-06 will worsen to $22.6 billion (or 2.9 per cent of the GDP and widen to $30.4 billion (3.6 per cent of GDP) in 2006-07. The current account deficit during April-December 2005 at $13.47 billion was 1.72 per cent of the GDP.