Sudhanshu Ranade Chennai, Nov. 13 Measured in dollar terms, India's foreign currency assets declined by a hefty $38.6 billion between September 26 and October 31, 2008; 14 percentage points in a single month! Over the same period, however, euro-denominated foreign currency assets declined by only 1 percentage point; not 14. The difference is particularly stark for the week ended October 3, when India's foreign currency assets fell by $7.7 billion, while simultaneously going up by ?5.2 billion! Similarly, for the week ended October 24, even as dollar-denominated assets fell by 15.5 billion, euro-denominated assets declined by only half a billion euros. The point is that such data should not be used to hurriedly conjure up disturbing visions of FIIs rushing towards the exit; without stopping to reflect that a large portion of the decline was in fact merely attributable to the widely noted rise of the dollar vis-a-vis a basket of six major currencies. There is one other point that needs to be made, in the context of our ability to finance the yawning trade deficit; namely that the precipitous fall in the dollar-denominated value of our reserves does not necessarily signal an imminent and commensurate balance of payments problem. Crisis-driven return Though the recent rise of the dollar, which the figure for foreign currency assets mirrors, is sometimes attributed to a flight of capital from the rest of the world to a safer (or more profitable) haven, a large portion of such capital flows might represent merely a crisis-driven return to the US of US capital that had hitherto been invested in markets abroad. The point is that the scope for the dollar to rise further, or even maintain its present level, is rather limited if what we are witnessing is mostly a chickens-coming-home-to-roost scenario. http://www.thehindubusinessline.com/2008/11/14/stories/2008111451200600.htm When prosperity comes, do not use all of it. --~--~---------~--~----~------------~-------~--~----~ You received this message because you are subscribed to the Google Groups "Kences1" group. To post to this group, send email to [email protected] To unsubscribe from this group, send email to [EMAIL PROTECTED] For more options, visit this group at http://groups.google.com/group/kences1?hl=en -~----------~----~----~----~------~----~------~--~---
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