NEW DELHI: India may not be short of foreign exchange to cover its import bill but the falling rupee and fears of FIIs withdrawing some of their investments in the country have put a spotlight on the reserves.
From an import cover of over 17 months a decade ago, India now has reserves of around $279 billion, sufficient to fund imports of just under seven months. In contrast, the BRIC peers — China, Russia and Brazil — have reserves to cover imports for one-and-a-half to two years. Compared to some of its Asian countries, such as South Korea, Malaysia and Indonesia, the situation in India would appear to be under control. But, economists are quick to point out that barring Indonesia, all other economies with similar import covers have a surplus on the current account, while India reported a record deficit of 4.8% of GDP in 2012-13 .
Of course, as the government has maintained that there is no need to panic just yet. "We are not short of money, or reserves or foreign exchange," Arvind Mayaram said on Friday.
The government seems to be drawing comfort from the possible fall in gold imports after a series of measures initiated by it. But, a weaker rupee will push up the import bill for oil and other products even if shipments stay flat. "There is stress on multiple fronts and external vulnerabilities have gone up. While there is pressure on foreign exchange reserve, much higher compared to 1991," said D K Joshi, chief economist at rating agency Crisil.
Economists say the situation is not as comfortable as is being made out to be. "We don't think the rupee will settle down until there are more proactive steps to raise import cover," said Indranil Sengupta, economist at Bank of America-Merrill Lynch.
Source:-timesofindia.indiatimes.com
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