Foreign Exchange Reserves

India’s foreign exchange reserves were US $ 261.1 billion as on October 19, 2007, higher by US $ 62.0 billion over end-March 2007. The increase in reserves was mainly due to an increase in foreign currency assets from US $ 191.9 billion during end-March 2007 to US $ 253.3 billion as on October 19, 2007 (Table 58).
India holds the fifth largest stock of reserves among the emerging market economies and sixth largest in the world. The overall approach to the management of India’s foreign exchange reserves in recent years reflects the changing composition of the balance of payments and the ‘liquidity risks’ associated with different types of flows and other requirements. Taking these factors into account, India’s foreign exchange reserves continued to be at a comfortable level and consistent with the rate of growth, the share of external sector in the economy and the size of risk-adjusted capital flows.
External Debt
India’s total external debt was placed at US $ 165.4 billion at end-June 2007, recording an increase of US $ 8.7 billion (5.6 per cent) over end-March 2007. The increase in external debt during the period was mainly on account of higher external commercial borrowings, followed by higher NRI deposits and short-term trade credit. Over 50 per cent of the external debt stock was denominated in US dollars followed by the Indian rupee (18.0 per cent), SDR (12.3 per cent) and Japanese yen (12.0 per cent). Debt sustainability indicators such as the ratio of short-term to total debt and short-term debt to reserves increased marginally between end-March 2007 and end-June 2007. Foreign exchange reserves remained in excess of the stock of external debt (Table 59).
International Investment Position
India’s net international liabilities declined by US $ 2.7 billion between end-March 2006 and end-March 2007, as the increase in international assets (US $ 60.8 billion) exceeded the increase in international liabilities (US $ 58.1 billion) (Table 60). The increase in international assets was mainly on account of reserve assets, which registered an increase of US $ 47.6 billion between end-March 2006 and end-March 2007, followed by direct investment abroad whichincreased by US $ 11 billion during the same period. International liabilities reflected increases in direct and portfolio investment and loans at end-March 2007 from their levels at end-March 2006. A major part of the liabilities like direct and portfolio investments reflects cumulative inflows, which are at historical prices.

Capital flows to India

Capital flows to India have remained buoyant during the financial year 2007-08 so far. Among the major components of capital flows, foreign investment recorded an inflow of US $ 20.7 billion during April-July 2007. Inflows under foreign direct investment (FDI) into India at US $ 6.6 billion during April-July 2007 (US $ 3.7 billion in April-July 2006) witnessed significant increase, reflecting the continuing pace of expansion of domestic activities, positive investment climate, and long-term view of India as the investment destination. FDI was channelled mainly into services sector (34.2 per cent), followed by construction industry (20.6 per cent). While Mauritius continued as the dominant sources of FDI to India, FDI from Singapore exceeded that from the US.
Foreign institutional investors (FIIs) inflows (net) have aggregated US $ 21.2 billion during the current financial year so far (up to October 19, 2007), reflecting, inter alia, strong corporate performance and strong domestic equity markets (Table 57). The number of FIIs registered with the SEBI increased from 997 by end-March 2007 to 1,113 by October 15, 2007. Capital inflows through American depository receipts (ADRs)/global depository receipts (GDRs) abroad amounted to US $ 2.3 billion during April-July 2007.
During the first quarter of 2007-08 (April-June 2007), net inflows under external commercial borrowings (ECBs) continued to be buoyant at US $ 7.0 billion. Ongoing technological upgradation and modernisation combined with expansion of domestic industrial activities have led to increased investment demand by Indian companies, and some hardening of domestic interest rates, which is reflected in higher recourse to ECBs.