New Delhi: India’s foreign exchange reserve, having peaked at $314.62 billion (Rs15.6 trillion) in May, fell by more than $44 billion in the past two months on account of the widening trade deficit and large-scale pull-out from equities by foreign institutional investors (FIIs).
The country’s forex reserve has come down to around $250 billion, according to the Reserve Bank of India.
Pressure on forex reserve was felt more between September and October as FIIs took away about $6 billion from the market.
Besides, a faster rise in imports over exports also took a toll on the forex pool.
The trade deficit reached close to $60 billion in the first half of 2008-09 as against $80 billion during the last fiscal year, official data showed.
The credit for a swelling forex kitty early this year also went to a boom in the stock market then, said Suresh Tendulkar, chairman of Prime Minister’s economic advisory council. “Prices of shares were very high when the FIIs invested in India. Now they are selling at throwaway prices. We gained a lot of foreign reserves at that time,” he said.
The depleting forex is also reducing the fiscal headroom for the government to increase public expenditure for reviving business confidence.
“Given the kind of fiscal profligacy which the government pursued for four years in office, compounded by an expansionary budget...the fiscal space available to this government for contra-cyclical measures is extremely limited...unless we add significantly to the deficit,” former revenue secretary N.K. Singh said.