Forex Current Scenario

The performance during the first 8 months of the current year (2009-10) has been promising. Between April and October 2002, exports registered a growth of 13.8% as compared to decline of 1.1 % during the same period last year. The contribution to the higher growth in exports has come mainly from exports of ores and minerals, engineering goods, gems and jewellery, readymade garments, handicrafts, chemicals, rubber manufacturing products, glass and non-basmati rice.

On the import front, the growth rate was 3.3% as against a decline of 1.4% during the same period the previous year. The first four of the fiscal had a negative growth rate in imports. A healthy growth in imports was seen during August-September . the petroleum bill showed an increase of 18.5% due to rice in international prices. Increase was also seen in the import of capital goods, especially transport equipment.

The trade deficit was USD 5 billion marginally down from USD 5.2 billion during the previous year. Sustained effect is needed to maintain the progress and achieve the avowed goal of achieving trade surplus.

In the post despite continuous balance of trade deficits, India could manage its balance of payments due to net receipt from invisible trade. But the balance of payments position remained under pressure throughout the seventh Five-year plan mainly due to large-trade deficits and fall in the surpluses on invisible account. Between 1995-96 and 1997-98 invisible showed an increase the positive balance from USD 5,449 million to USD 10,007 million.

The balance of payments of India continued to face strain in 1990-91. In fact the position challenged the clean record of India in payment of external borrowings; doubts about possible default in repayments were triggered by down grading of credit rating by international agencies. The foreign exchange reserves declined sharply from RS. 5,480

Crores at the end of august 1990 to RS.2, 152 crores in December 1990.the GULF crisis beginning in august 1990 with consequent increase in import bill of oil and reduction in inward remittances was a major factor contributing to the situation.

In January 1991, India Obtained two loans from IMF amounting to SDR 1,269 million. As a result of the borrowing, reserves increased to RS.4, 719 crores by the end of January 1991. Simultaneously the reserve bank also imposed severe curbs on imports through a steep hike in cash margins for import. However between April and June 1991, the reserve declined again with complete stoppage of commercial funds from abroad. Besides, there was also a large outflow of funds from the NRI deposits. In July 1991 a second drawal of SDR 166.18 million was made from IMF. In the same month reserve bank borrowed USD 400 million by pledging 46.9 tonnes of gold. As a result of these efforts, the reserves increased to RS.3, 313 crores by the end of July 1991.

Between September 1991 and January 1992,indai received large inflow of capital in the form of IMF loans , India development bonds floated for NRIS and amnesty scheme for NRIs. Total inflow of foreign capital during this period amounted to Rs.5,900 crores, India development bonds and Amnesty schemes accounting for Rs.4,000 crores. Resurgent India bonds issued in 1998 could get Rs.4,000 crores. By January 2000,the foreign exchange reserves showed a comfortable figure of USD 34 billion.

The year ending march 2002 saw after a lapse of long years a positive balance of payments position, though on a modest scale. Since there has been a surge in foreign exchange reserves contributed by lower trade deficit, foreign direct investment and other inward remittance. The foreign exchange reserves of the country stood at all time high of USD 68.4 billion by December 2002. in fact the size of the reserves has given rise to the question whether the country could afford such a huge balance in foreign exchange. The inward remittance, not matched by an increase in domestic production, are expected to have an inflationary effect on the domestic economy through increased money supply. The reserve bank has been sterilizing the inflows through open market operations. It is issuing government securities to absorb the liquidity and at the same time reduce the interst cost on government borrowings.