The country's foreign exchange reserves crossed $50 billion on the back of sustained dollar buying by the Reserve Bank of India (RBI) through a clutch of state-run banks.
The RBI's weekly statistical supplement, released on Saturday, said the reserves increased by $442 million during the week ended February 15 to $50.208 billion.
Analysts said the reserve could have crossed the $50 billion mark in weeks ahead but for the weakening of other major currencies -- euro, pound and yen -- against the greenback.
During the financial year thus far, the reserves have gone up by $7.927 billion. On a year-on-year-basis, the increase was $8.514 billion. Bankers are not ruling out the possibility of the highest-ever foreign exchange mop-up during the current fiscal year which closes on March 31, overtaking the 1993-94 forex accretion when the country's forex reserves went up by close to $9 billion dollar -- from $9.83 billion in 1992-93 to $19.25 billion.
Over the last decade only once did the forex reserves dip in 1995-96 from $25.18 billion to $21.68 billion.
The over $50-billion reserves can cover import bills of one year. Indeed, the country has come a long way from 1991 when it plunged into its worst-ever balance of payment crisis and the $5.83 billion reserves could cover barely a month's import bill.
India's forex reserves are now higher than that of some of the east Asian countries such as Indonesia ($27.3 billion in December, 2001), Malaysia ($30.5 billion in December 2001) and Philippines ($14 billion in January 2002).
Forex market dealers feel that the reserve will go up further as the central bank is continuously mopping up dollars, possibly encouraged by the fact that the currency is still overvalued by around 2 per cent against the greenback on a trade weightage basis.
A section of the dealers said another $500 million has already been mopped up by the RBI during February 16-22.
The combination of high foreign exchange reserves and low inflation rate has given a fresh lease of life to the debate on capital account convertibility (CAC).
The Tarapore committee on capital account convertibility said the forex reserves should be able to cover at least six months' import as a precondition to ushering in CAC. The fiscal deficit, however, continues to be high and off the target outlined by the committee as a precondition to full convertibility.
On the positive side, the short-term debt as percentage of the total reserves has come down which renders comfort to the capital account of the country.
Economists said the Indian government has been opening up the currency progressively, it may not be in a hurry to bring in full convertibility in the capital account as it will be difficult to stall capital outflow in case of any global crisis.
Besides, once the capital account is convertible, corporates needs to hedge their forex risks which may not be easy as there is hardly any derivatives market at the longer end. Small doses of reforms are likely to continue on the capital account convertibility front and the government may take its own time to bite the bullet.
