Soaring high
The Reserve Bank of India (RBI) governor Bimal Jalan was particularly unhappy at the media's branding of the falling rupee as `record lows' and `life-time lows' sometime ago. Now he would certainly not cavil at the media terming the foreign exchange reserves kitty at $41 billion as "life-high" or some such adulatory label. Buoyant exports made possible by a commendable growth of around 20 per cent y-o-y and a relatively stable rupee have helped matters. Invisibles coupled, including the NRI remittances and other capital flows, have formed the mainstay of the rise in forex. Just about a couple of months back, the central bank ran down the levels of the foreign exchange trying to salvage the rupee. Though the RBI denies that it has any target level for the rupee, its actions give a lie to this denial. It is quite apparent that the officials would not like the rupee to move beyond a certain band.The RBI data have placed the reserves at $41.7 billion as on February 9, 2001. Reserves drew sustenance from the foreign currency assets (FCA) that swelled to $38.5 billion. For the said week, there was an inflow of $4 billion. Special drawing rights (SDR) and gold, the stable components determines the foreign exchange reserves. While the SDRs witnessed no change, gold declined by $60 million.
But the moot point here is - How much forex is too much? The present levels of foreign exchange are enough to cover nine months of imports. Just before the 1991 rupee devaluation, foreign exchange reserves had sunk to a level that was barely enough to take care of the 15 days of imports. But import cover is not a sufficient criteria for judging the forex levels. Moreover, if NRI deposits, excluding repatriable deposits to the tune of $20 billion, cumulative portfolio investments of $16 billion and amortisation of loans per year to the tune of $12 billion, are taken into account the convertible foreign exchange reserves look less than impressive. Capital Flow data of the RBI, particularly when it comes to short term reserves and liabilities, are ambiguous and confusing. Portfolio investments are shown as net inflows instead of being classified as outstanding liabilities. NRI deposits are counted as part of the reserves although they are more akin to liabilities.
Also, the definition of short-term debt, as used by the North Block, is different from the one given by the International Working Group on External Debt Statistics (IWGEDS) constituted by the World Bank, IMF, OECD and BIS. While India defines short-term debt as - loans with one year or less maturity at the time of contracting, IWGEDS group defines short-term debt by residual maturity, which includes long-term debt obligation falling due within one year as well as short-term debt by original maturity. If we consider the repayment of long- term debt falling due in the present year, the ratio changes drastically.
Strangely enough, the software sector earnings have not been considered worthy of separate classification. They continue to be classified under the general rubric `services'. The composition of the reserves makes it amply clear that instead of drawing on short-term components like NRI remittances and schemes like the Resurgent India Bonds and the India Millennium Deposits the reserves must be built on a strong base of sustainable growth of export earnings.
Sachchidanand Shukla
Copyright © 2001 Indian Express Newspapers (Bombay) Ltd.
