Foreign exchange kitty gets $3.8 bn booster shot

The country's foreign exchange reserves witnessed its highest-ever weekly accretion of $3.8 billion in the week ended December 3, 2004.

The total forex reserves jumped to $130.71 billion. The rise reflects strong inflows from foreign institutional investors (FIIs) and revaluation gains from the dollar's sharp fall overseas against other major currencies.

The Reserve Bank of India's (RBI) aggressive dollar buying to check a sharp appreciation of the rupee also helped in piling up of the reserves.

Euro, sterling pound and yen have appreciated sharply against the dollar and this got mirrored in the forex reserves. Euro, pound, yen, apart from the dollar constitute the reserves.

FIIs' net investments in equities are at a high of $7.76 billion thus far in 2004. FIIs have invested close to $1 billion in bonds, a major portion of it in corporate bonds, following exclusion of corporate debt from the $1.75 billion ceiling on investment in debt papers.

The forex reserves are up $17.75 billion since April 2004 and up $27.566 billion in 2004 so far, according to RBI's weekly statistical supplement.

The reserves increased by $8.5 billion in the last one month, amid contentious discussion over using a part of it for infrastructure development.

Planning Commission deputy chairman, Montek Singh Ahluwalia, has been vociferously pushing for using about $15 billion of the reserves over three years for developing the much-needed infrastructure.

But the proposal has met with resistance on the grounds that it would fuel inflationary pressures, besides adding to the already high fiscal deficit.

World Bank chief James Wolfensen had responded favourably to the proposal. During his recent visit to India, he said it could be a better use of forex reserves than investing them in US government securities.