Review of the mid-term Macroeconomic and Monetary Development, released by the Reserve Bank of India (RBI), said that capital flows have remained volatile. Net capital flows during 2008-09 were lower than those in the corresponding period of 2007-08, mainly on account of outflows by foreign institutional investors ($7.3 billion) during 2008-09 (up to October 10, 2008) in contrast to net FII inflows ($ 18.9 billion) during the corresponding period of 2007-08.
On the other hand, net FDI flows into India were placed higher at $16.7 billion during April-August 2008 against $8.5 billion during April-August 2007. The funds raised through issuances of ADRs/GDRs abroad were at $1.1 billion during April-August 2008 ($2.8 billion in April-August 2007).
NRI deposits recorded a net inflow of $273 million during April-August 2008 mainly due to inflows under the rupee deposit accounts as against a net outflow ($168 million) during April-August 2007, said the report.
With net capital flows being higher than the current account deficit, the overall balance of payments recorded a surplus of $2.2 billion during the first quarter of 2008-09 ($11.2 billion in the first quarter of 2007-08).
India?s foreign exchange (forex) reserves were $274.0 billion as on October 10, 2008, showing a decline of $35.7 billion over end-March 2008. The decline in the forex reserves was due to decline in almost all the components of reserves. While foreign currency assets declined from $299.2 billion as at end-March 2008 to $265 billion as on October 10, 2008, gold declined from $10 billion to $8.6 billion on account of decline in the value of gold; SDRs declined from $18 million in March 2008 to $4 million
India holds the third largest stock of reserves among the emerging market economies as at September 2008-end. The overall approach to the management of India?s forex 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 forex reserves continued to be at a comfortable level and consistent with the rate of growth, the size of external sector in the economy and the size of risk-adjusted capital flows.