Forex sustains strong Rupee, repayments

Reflecting the resilience in the economy, India comfortably absorbed the shock of a surge in global oil prices and appreciation of rupee vis-à-vis dollar even as it redeemed billions of dollars to NRIs with a marginal decline in foreign exchange reserves now placed at $140 billion, the Economic Survey said.

Unlike in recent years, the forex reserves dipped by $2 billion during 2005-06 as the country redeemed $7.1 billion through the India Millennium Deposits.

Besides IMD redemption, the survey cited two other reasons for decline in forex reserves - valuation losses from a weak dollar and widening of the current account deficit.

Economic Survey 2005-06

At the end of March 2005, the country's total reserves including foreign currency assets, gold, special drawing rights and reserve tranche position at IMF stood at $141.5 billion.

But the reserves declined to $139.2 billion at the end of January 2006, the survey observed. The biggest declines were during May and December 2005, of the order of $3.0 billion and $5.6 billion.

The sharp decline in December was due to IMD redemption. The weakening of US dollar compared to other major global currencies resulted in valuation loss of $5.0 billion in reserves in the first half of 2005-06.

This was also reflected in the movement of rupee vis-à-vis the dollar, it said. There was a sharp rise in current account deficit of balance of payments, which stood at $13 billion in April-September 2005-06, the survey said.

Even with such a deficit, on BoP basis there was a net addition of worth $6.5 billion in April-September 2005-06, the survey said, adding this accretion was, however, offset to a large extent by valuation losses.