With the unending US Financial Hurricane season (Hurricane Bear Sterns, Fannie, Hurricane Freddie, Hurricane Lehman...AIG...WAMU...and Hurricane Credit Card Default season to follow) the Indian economy is not exactly "rocking" as it was this time last year. Goa's tourism is also poised to take a hit from the global downturn and its worth taking a look at how comfortable India's foreign currency balance is.
The RBI website has interesting data: http://rbidocs.rbi.org.in/rdocs/Publications/PDFs/85765.pdf The RBI term Forex Reserves is usually thought to mean net of Liabilities. This is not the case and the word Reserves ought to be replaced by the correct term Assets. Forex Reserves (Assets) have slipped since Q1 highs to $ 289.5 Bil (12-Sep-08) Foreign Debt (Liabilities) $ 221.2 bil (31-Mar-08) was up $51.5 Bil since 31-Mar-07 See table on page 5 of the report - Over 17 years the cumulative Current Account remained firmly negative -$52.4 Billion In fact the most recent years Current account shows consistent negative nos 2004-05 -ve $ 5.4 Bil 2005-06 -ve $ 10.6 Bil 2006-07 -ve $ 9.8 Bil 2007-08 -ve $ 17.4 Bil Invisibles incl Software exports & Inward remittances (NRIs?) brought in $40Bil each in 07-08 When the US fin earthquake began rolling last week (its far from ending?) RBI ordered Indian banks to increase FCNR deposit rates by 50bps. Besides Software & Remittancs, FDI and FII have also been key drivers behind INR strength till 2007. They have headed for the door in Q2-08. As India's demands for Capital & Infrastructure Goods (including Aircraft and Business acquisitions like Corus & Jaguar) increases the Foreign Debt figure will continue to rise. With imports growing faster than exports Rupee devaluation was desperately needed and achieved (-18% versus USD) With banks in trouble and a recession in US/Europe software exports may be in trouble. Oil price declines are desperately needed by India.(Petroleum related net outflows were $54.7 Bil in 07-08) We must hope that Foreign Investors will find that, deep rooted government corruption notwithstanding, Indian investment offers superior returns.(though there are some economists who believe that growth with the distortion of chronic corruption is not sustainable). The Indian household consumption credit market after all has a very long way to go before reaching the bubble levels of the US. Risk has always been encouraged by the US Fed cheap credit policy. Imagine interest rates @ 1-2% in a highly leveraged economy with steeply negative household capital formation. Time will tell whether an inflation focussed ECB (and RBI) is right to keep money expensive. Whether its better to have higher unemployment than a "worth-less" currency of a banana republic that consumes far far more than it produces. Changes in Indias Forex Assets (mistakenly called Reserves) India Forex Reserves Change per RBI converted includes FX to USD Revaluation 12-Sep 289461 650 EUR=1.40 05-Sep 288811 -6498 EUR=1.42 29-Aug 295309 -1977 22-Aug 297286 1076 15-Aug 296210 -17324 18-Apr 313534 37975 EUR=1.60 28-Dec 275559 EUR=1.47 RBI Report: The External Economy http://rbidocs.rbi.org.in/rdocs/Publications/PDFs/85866.pdf
