Forex reserves exceed debt obligations by 40%
Dr. M.S. Kapadia
International Investment Position
India's total international financial assets, as per RBI compilation, amounted to $381.45 billion at the end of 2007-08, while the external liabilities (both
debt and non-debt) totalled $434.45 billion.
The net IIP (assets-liabilities) of the country i.e. total net claims of
non-residents, worked out to $53 billion, showing an annual decline of $8.96
Reserve assets (reflecting foreign exchange reserves with RBI), which amounted
to $309.72 billion, remained the most dominant component of the external assets,
though its share in external assets declined from 83.2 per cent as of December
2007 to 81.2 per cent due to faster rise in FDI overseas and spurt in forex
loans extended by banks. Reserve assets were 81 per cent of total external
assets at the end of March 2007. Direct and portfolio investment overseas and
other investment comprising loans, trade credits, deposits etc., accounted for
12.3 per cent and 6.5 per cent respectively.
FDI overseas shot up by $16.8 billon to $46.2 billion. The ratio of stock of FDI
overseas to FDI into the country increased to 40 per cent from 30 per cent two
years ago. Portfolio investment abroad has remained nominal at less than $1
Reserve assets at $309.72 billion exceeded the entire external debt consisting
of loans, debt securities, trade credits, currency and deposits etc ($221.21
billion) by $88.51 billion (40 per cent) as at end-March 2008.
Around 51.8 per cent of the country's external financial liabilities were in the
form of repayable trade credits, loans, debt securities, other capital, currency
and deposits etc. Non-debt commitments like portfolio investment (equity part)
and direct investment accounted for 48.2 per cent of external obligations. Loans
comprised 24.5 per cent of debt liabilities, trade credit 10.5 per cent,
currency and deposits 10.3 per cent, debt securities (part of portfolio
investment) 4.9 per cent and other capital around 1 per cent.
The share of non-debt liabilities to total external financial liabilities
increased from 43 per cent two years ago to 48 per cent due to escalating FDI,
which more than doubled to $115.5 billion over the period. Portfolio investment
of $119.5 billion showed $40 billion rise during 2007-08, twice the pace in the
preceding year. Bulk of the investment was in equity, which shot up by $35
billion. Portfolio debt security investment rose by $5 billion. Loans and trade
credit components of 'Other Investment' increased by $38 billion and $24 billion
respectively over the two-year period, while currency and deposits expanded by a
much lower $8 billion.
The ratio of net IIP of India to GDP was (-) 4.5 per cent at the end of March
2008 as compared with (-) 6.5 per cent at end-March 2007.
The total external financial assets to GDP (at current prices) ratio increased
to 32.4 per cent from 22.9 per cent as at end-March 2007. The Reserve assets to
GDP ratio stood at 26.3 per cent (18.9 per cent).
The ratio of total external financial liabilities to GDP increased from 32.4 per
cent to 36.9 per cent.
The country's total external stake in the form of financial assets and
liabilities was around 67 per cent of GDP for 2007-08.
The International Investment Position (IIP), compiled at the end of a specific
period, is the statement of the stock of external financial assets and
liabilities of a country. The financial assets consist of the country's
financial claims on non-residents and financial liabilities consist of the
country's financial liabilities to non-residents. These transactions are
classified according to institutional resident sectors, namely monetary
authority, government, banks, and other sectors including corporate sector. The
net international investment position (the stock of external financial assets
less the stock of external financial liabilities) shows the difference between
what an economy owns in relation to what it owes.
[September 8-14, 2008]