Sunday, July 10, 2022

India's Forex Reserves Fall As Foreign Investors Head For The Exits

India's foreign exchange reserves are falling rapidly as foreign investors flee and the country's trade and current account deficits widen. More than $267 billion worth of India's external debt of the total $621 billion is due for repayment in the next nine months. This repayment is equivalent to about 44% of India's foreign exchange reserves. This combination of investors' exodus, widening twin deficits and short-term debt repayments has caused the Indian rupee to hit new lows. Unlike China and other nations that have accumulated large reserves by running trade surpluses, India runs perennial trade and current account deficits. The top contributor to India's forex reserves is debt which accounts for 48%. Portfolio equity investments known as “hot” money or speculative money flows account for 23% of India's forex reserves, according to an analysis published by The Hindu BusinessLine

India's Declining Forex Reserves. Source: Business Standard

Investor Exodus: 

Foreign portfolio investors have pulled out a whopping $33.5 billion from equity and $2.1 billion from debt segments of Indian financial markets, for a total net outflow of $35.6 billion from October 2021 to June 2022,  according to data compiled by the National Securities Depository Limited. In the first half of this calendar year, the total net outflows were $29.7 billion. 

It's not just the FPIs leaving India; a number of multinational companies are also pulling foreign direct investment (FDI) from India. Several big names including German retailer Metro AG, Swiss building-materials firm Holcim, US automaker Ford, UK banking major Royal Bank of Scotland, US motorcycle manufacturer Harley-Davidson and US banking behemoth Citibank have chosen to pull the plug on their operations in India or downsize their presence in recent years. 

Widening Deficits: 

India's finance ministry has warned of a growing twin deficit problem, with higher commodity prices and rising subsidy burden leading to an increase in both the fiscal and current account deficits. India's June trade deficit widened to a record high of $25.63 billion, mainly due to a rise in crude oil and coal imports, from $9.61 billion a year earlier.  India's April-May fiscal deficit was $25.8 billion. 


India's current level of forex reserves is enough for less than 10 months of imports projected for 2022-23. But the country has had a structural current account deficit which has been funded by large capital inflows. The accumulation of forex reserves has been due to surplus in the capital account. Since late February, the foreign exchange reserves have declined by $36 billion. India still has large forex reserves but its economy is in the same boat as other emerging markets that run large and worsening trade and current account deficits. With declining forex reserves, India is likely to face headwinds as the US Federal Reserves raises interest rates to fight inflation. 

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Yang M. said...

Inflation in India is now soaring. The CPI has reached 7.8%, which is close to the inflation rate of the USA.

The Indian Rupee exchange rate is accelerating its decline. In just six months, the Indian rupee has fallen from 73 in January to 79 in June. It fell faster than the euro.

India's external trade environment is also deteriorating rapidly. In the first five months of 2022, India's trade deficit reached a record $101 billion. In May this year alone, India's trade deficit reached US $24billion.

India's foreign exchange reserves are only $570billion. In addition, India still has US $620billion in external debt, with a total debt of more than US $1.4 trillion.

Global investors are losing confidence in the Indian economy. In 2021, a record $32billion of investment was withdrawn from the Indian market. In 2021, the loss rate of foreign investment in India was second only to Malaysia and Indonesia.

The unemployment rate in India is gradually rising, with the total unemployment rate exceeding 8% and the urban youth unemployment rate exceeding 22%.

The Indian stock market is also collapsing. The Mumbai 30 index fell by 15% in the first five months of this year, which is the lowest point after the Indian epidemic in 2020.

Shams said...

India still is #4 in the countries with highest foreign exchange reserves, after China, Japan, and Switzerland. Other big names like the UK, France, Germany, and the USA are quite far down the list. Russia is # 5, Saudi Arabia #8, and the US is #13, with the UK at # 15.

Bangladesh is at #45 with $42 billion in FE reserves.

Where is Pakistan? It is at #77, with $9.8b in reserves.

Riaz Haq said...

Shams: "UK, France, Germany, and the USA are quite far down the list"

What you don’t understand is this basic economic fact: US, UK, EU can print hard currencies that will buy them anything whatever they want. India does not have that luxury, nor do other emerging economies.

Indos said...

Indonesia FDI keep increasing in 2021, even in 2020 the FDI still increased. Within this first Q12022, FDI increases about 38 % compared to the same period last year.

Unlike Indian economist who keep talking their economy growth will be about 7-8 percent while the reality their GDP in the last 6 months (Q4 2021 and Q1 2022) are just 5.4 and 4.2 %, Indonesian economist projection on Indonesia economy is so far match with the last 6 months GDP data around 5 % (Q4 2021 and Q1 2022 are stable at 5.02 and 5.2 % )

Shams said...


you shifted the focus to a fact irrelevant to this discussion. Your comparison ought to be that India is #4 after China, Japan, and the Swiss, while Pakistan is # 77 right after Nepal. These are all "non-hard-currency" countries.

Riaz Haq said...

Shams: "you shifted the focus to a fact irrelevant to this discussion. Your comparison ought to be that India is #4 after China, Japan, and the Swiss, while Pakistan is # 77 right after Nepal. These are all "non-hard-currency" countries"

What I pointed out about forex reserves is absolutely relevant to the discussion.

Countries outside of the US and EU have to EARN or BORROW or attract FOREiGN INVESTMENTS in US$ or Euro to build their forex reserves.

While China has earned its forex reserves by running trade surpluses, India has borrowed about half of them and got the rest through foreign investors.

India runs huge trade and current account deficits. It exports are a lot less than its imports.

With imports costing a lot more and foreign investors fleeing, India, like Pakistan, runs the risk of running out of its forex reserves.

Bilal said...

The magic of Modi strong-arming Indian "experts" in IMF (Gita Gopinath), World Bank etc.

Too many Indians fudging numbers globally.

It's okay, we shall see how far this fudging goes.

At some point there will be hell to pay for all the lies.

Riaz Haq said...

#India population to surpass #China's in 2023. Over half of global population increase up to 2050 will be in just 8 countries: Dem Republic of #Congo, #Egypt, #Ethiopia, #India, #Nigeria, #Pakistan, #Philippines & #Tanzania.

For 10 countries, the estimated net outflow of migrants exceeded 1 million over the period from
2010 through 2021. In many of these countries, the outflows were due to temporary labour
movements, such as for Pakistan (net flow of -16.5 million), India (-3.5 million), Bangladesh
(-2.9 million), Nepal (-1.6 million) and Sri Lanka (-1.0 million). In other countries, including
Syrian Arab Republic (-4.6 million), Venezuela (Bolivarian Republic of) (-4.8 million) and
Myanmar (-1.0 million), insecurity and conflict drove the outflow of migrants over this period.
• All countries, whether experiencing net inflows or outflows of migrants, should take steps to
facilitate orderly, safe, regular and responsible migration, in accordance with SDG target 10.7.


Between 2010 and 2021, 40 countries or areas have experienced a net inflow of more than
200,000 migrants; in 17 of those, the total net inflow exceeded 1 million people.
In 2020, Türkiye hosted the largest number of refugees and asylum seekers worldwide (nearly 4 million),
followed by Jordan (3 million), the State of Palestine (2 million) and Colombia (1.8 million). Other major
destination countries of refugees, asylum seekers or other persons displaced abroad were Germany,
Lebanon, Pakistan, Sudan, Uganda and the United States of America (United Nations, 2020b).

Gundroo said...

Total debt burden now exceeds India’s GDP of $ 2.6 trillions and is forcast to exceed $4.6 trillions by 2026. Most of this debt has accumulated only since 2014.
20% of budget for 2022/2023 is allocated as intrest payment just for external debt. India too like so many countries worldwide including European countries is not immune to economic crises like Srilanka .

Ahmed said...

Dear Sir

Asalam Alaikum

Eid Mubarak to you and to your family , Sir I have a question , I was reading a news from Times of India which is a famous Indian news website , it mentions that India is the biggest reciever of economic aid from America since 1955. Sir when I debate with Indians on social networking sites and when I use this news as a source of my argument with Indians and try to prove them that India has received highest amount of economic aid since many decades . In response these Indians say that India is a country which has over 1 billion population and inspite of that India has received only 65 billion US$ But Pakistan a country of just 200 million population has received 44 billion US $ since many decades .

Sir my question is that do you really think that India depending on its huge population has received less economic aid from America since 1955?

Pls Sr throw some light on this


Riaz Haq said...

$4.5b bailout for #Bangladesh: #IMF team to arrive tomorrow amid global #commodity price #inflation. If everything proceeds smoothly, the loan deal could be finalized by October this year

A delegation from the International Monetary Fund (IMF) is set to arrive in Dhaka tomorrow on a nine-day trip to discuss the government's request for a $4.5 billion loan in the form of budgetary support.

Rahul Anand, division chief in the IMF's Asia and Pacific Department, will lead the team during talks with the senior officials of the finance ministry, the central bank, the National Board of Revenue and the Economic Relations Division.

If everything proceeds smoothly, the loan deal could be finalised by October this year, said an official of the finance ministry yesterday.

The request for budgetary support comes to shore up the precarious foreign currency reserves, which yesterday stood at $39.8 billion -- the lowest since October 14, 2020.

This is enough to cover about five months' import bills.

Typically, the World Bank and the IMF prescribe an import cover of three months, but in times of economic uncertainty, they advise keeping sufficient reserves to meet 8-9 months' imports.

Going forward, even though imports are slowly contracting, the elevated inflation levels around the world mean the odds of a slowdown in both remittance inflows and export orders, two sources of foreign currency for Bangladesh, are high.

The IMF officials will look into the impacts of the Russia-Ukraine war and escalated global commodity prices on the Bangladesh economy, the status of recovery from the global coronavirus pandemic and the government's large subsidy programme.

They will see whether the subsidy spending is justified and compare it with the other countries. If it is deemed excessive, the IMF mission may suggest ways to trim it.

Subsidy spending in the just-concluded fiscal year is Tk 66,825 crore, 24.1 percent more than the original allocation thanks to the spiral in fuel and fertiliser prices in the global market.

In this fiscal year's budget, Tk 82,745 crore has been earmarked for subsidy.

But considering the price trend of oil, gas, and fertiliser in the international market, the estimated spending can be 15-20 per cent higher than the initial estimates, said Finance Minister AHM Mustafa Kamal in his budget speech in June.

The Washington-based multilateral lender could tie in conditions for the loan package.

The conditions could include measures to increase revenue, lower subsidy expenditure, market-based exchange rate and lending rate, and reforms in the banking sector and tax administration, the finance ministry official said.

The government has already moved to tighten its belts though.

It has unveiled a relatively smaller budget for the current fiscal year, put on hold low-priority projects, suspended foreign tours of government officials, adjusted the prices of gas and diesel to some extent, and loosened the exchange rate policy.

The government has also signalled that it may raise the price of fuel oil and has proposed to the Bangladesh Energy Regulatory Commission to increase the electricity tariff to cut the subsidy burden.

Surjit Bhalla, executive director of the IMF for India, Bangladesh, Bhutan and Sri Lanka, who represented Bangladesh on the board of the Washington-based lender, is also set to visit Bangladesh separately.

Z Bukhari said...

There is a lot of rumour about the interest rate offered by Chinese in latest loan. Please do not believe rumour. According to my sources the rates offered are "friendly" rate and precisely the reason their side has requested rates not be disclosed.

They are willing to put an alternative to IMF package but some "guarantees" have been asked which is pending at agencies desk. Incase IMF package does not happen Chinese package will be accepted.

If you have dollar deposit in Pakistan, please do not withdraw.

Zen, Germany said...


you tell critics that they don't understand economics. But you still don't seem to understand the basis of India's stability. There the prosperity matters way less than subsistence and maintenance of equilibrium at lowest level. Hindu society achieved a lowly equilibrium based on caste hierarchy and patriarchy atleast 1000 years ago. Since then, it is based on the value of subsistence.

So if you ever dream that in India, people will protest against food price hikes or high COVID deaths like it happens in North Africa or central Asia, you will be waiting forever. Despite the militant attitude against Muslim minorities, the majority are always willing to tighten the belt and live watching bollywood.

Riaz Haq said...

#India’s #economy can’t compete with #China’s — & that should worry #US policymakers. #Biden administration must be alarmed by the recent decisions by several foreign corporations to either pull out of the Indian market or put their long-term plans on hold


The Biden administration must be alarmed by the recent decisions by several foreign corporations to either pull out of the Indian market or put their long-term plans on hold. The U.S. has, for years, hoped to assist India’s rise as a way of checking China’s growing power. But even though India is the world’s fastest growing major economy, its economic policies continue to disappoint American, European and Japanese officials and investors.

Western democracies, which see India as a natural ally, believe that India would be able to deliver on its economic and military potential only if it attains higher growth rates. That, in turn, would only be possible with larger inflows of foreign investment and further opening of India’s markets. Although India’s economy is expected to grow at 8 percent in 2022 and at 6.9 percent in 2023, it is less than the 12.5 percent and 8.5 percent originally forecast by the International Monetary Fund (IMF).

India’s growth is attributed to its large consumer market rather than to increased foreign direct investment (FDI). Indians seem content that India’s exports are high, its stock market is doing well and India’s vibrant middle class is indulging in what economists call post-pandemic “revenge spending.” But India’s Western partners see India as “a challenging place to do business,” according to the U.S. State Department’s 2021 Investment Climate Statement.

According to Heritage Foundation’s 2022 Index for Economic Freedom, India ranks 27 among 39 countries in the Asia–Pacific region, with an overall score below the regional and world averages.

From the perspective of the U.S. and India’s Western partners, it is a matter of unrealized expectations. India cannot catch up with China without overcoming the large gap in the relative size of their economies. China currently has a nominal GDP of $17.7 trillion while India’s GDP stands at only $3.1 trillion. On the other hand, India is expected to surpass China as the world’s most populous country in 2023, raising its domestic challenges of providing food, education and employment for an expanding young population.

Given its economic gap with China, and the needs of its growing population, it would seem reasonable that India would want to attract FDI. But between 2019 and 2021, the share of global FDI inflows to India have shrunk, from 3.4 percent to 2.8 percent. Meanwhile, China’s share of global FDI rose from 14.5 percent to 20.3 percent.

Even though the U.S., Europe, Australia and Japan all see India as their future partner, their corporations are either pulling out or reducing the size of their operations in India. Swiss building-materials firm Holcim, Royal Bank of Scotland, Harley-Davidson and Citibank have already announced plans to downsize or leave India.

German retailer Metro AG is selling off its Indian operation after two decades. Both Ford Motor Company and Tesla announced they had put on hold plans to make electric vehicles (EVs) in India. This decision, at a time when the Indian government is championing renewable energy, is related to India’s high tariff and tax barriers.

This week, French spirits group Pernod Ricard, maker of Chivas and Absolut, announced a decision to place new Indian investments on hold because of “everlasting” tax disputes with local authorities that date back almost 30 years.

Riaz Haq said...

#India’s #economy can’t compete with #China’s — & that should worry #US policymakers. #Biden administration must be alarmed by the recent decisions by several foreign corporations to either pull out of the Indian market or put their long-term plans on hold


Some $100 million in assets of Amway, the American multi-level marketing company that sells health, beauty and home care products, have been frozen by Indian law enforcement while the company is investigated for ostensibly “operating a pyramid scheme.” Ironically, the company has done business in India for three decades with the same business model of direct selling.

Moreover, Ricard is not the only international business facing taxation challenges in India. IBM has had $865 million stuck in an escrow account since 2009 while a tax dispute over retroactive tax meanders through India’s legal system. India could have used IBM’s nearly $1 billion if put to productive use.

Two U.K.-based companies – Telecom giant Vodafone and energy company Cairn –were hit with large capital gains tax demands based on legal changes after mergers or acquisitions. The Indian government took one decade to rollback its retroactive taxation policy, only after India lost two cases at the World Bank’s International Center for Settlement of Investment Disputes (ICSID) and The Hague tribunal.

The challenges notwithstanding, India’s large size and location continue to make it a prized market for foreign businesses. Air India, the formerly state-run airline now owned by Tata Group, announced plans to overhaul its entire fleet of 300 narrow-body jets in one of the largest orders in commercial aviation history. Boeing and Airbus are the leading contenders for this deal. Access to the large Indian consumer market is a dream, as is the hope for a stake in the upgradation of India’s civilian and military infrastructure.

But, by and large, Western hopes of a modern, fast-growing, prosperous and free market-oriented India have not been realized at the pace predicted by some in the first few years of the 21st century. India’s current rate of economic growth is woefully inadequate for India’s domestic goals as well as the objective of becoming a serious rival to global economic juggernaut, China. The latter makes India’s economic policies a strategic concern for U.S. policymakers.

Ahmed said...

Dear Sir

I hope you are doing well , can you pls answer my above questions which I posted yesterday or say before yesterday ?

Riaz Haq said...

Ahmad: "Sir my question is that do you really think that India depending on its huge population has received less economic aid from America since 1955?"

Donors do not give aid based on the size of the receiving country's population. If they did, Israel, among the largest recipients of US aid, would get very little aid.

Please read the following for recent status of foreign aid from western nations.

Anonymous said...

Mike Rubin writes....

Riaz Haq said...

Anon: "Mike Rubin writes...."

Pakistan's total collapse has been predicted by a long list of forecasters, particularly Indians, throughout history....starting in 1947.

Asia 2025, a US Defense Department Study produced in summer of 1999, forecast that Pakistan would "disappear" as an independent state by 2015. It further forecast that Pakistan would become part of a "South Asian Superstate" controlled by India as a "regional hegemon". Two Indian-American "South Asia experts" contributed to this study. Much of the forecast in its "New South Asian Order" section appears to be wishful thinking of its Indian contributors.

Anonymous said...

There is an English saying that you can fool some of the people some of the time but you can't fool all the people all the time. Who ever came up with it never met an Indian. Indian public has been fooled for 75 years and they are still buying the same churan. Every few years someone comes with a prediction of Pakistan's demise and Indians start jumping. Panduit Nehru was the first to predict that in less than 50 years Pakistanis would come beginning India to join. Forgot Pakistan, even little brother Nepal doesn't want to join them.

G. Ali

Riaz Haq said...

#India’s World-Beating Growth Isn’t Creating #Jobs. #Unemployment rate is hovering around 7% or 8%, up from about 5% five years ago. The labor force participation rate has dropped to just 40% of the 900 million #Indians of legal age. #Modi #BJP #Hindutva

No other major economy has been expanding as fast as India lately, beating both China and the US. But beyond the headlines lies the grim reality of rising unemployment. The nation of 1.4 billion people isn’t creating enough jobs for its growing workforce, despite campaign promises by Prime Minister Narendra Modi to make it a priority. Output is increasing as a result of pandemic-related government spending while the private sector sits on the fence, deterred by dim conditions for new investment. Meanwhile, pandemic-related disruptions and rising inflation are making it harder for everyone to get by. Tensions boiled over in June when angry youth facing bleak job prospects blocked rail traffic and highways in many states for days, even setting some trains on fire.

The unemployment rate in India has been hovering around 7% or 8%, up from about 5% five years ago, according to the Centre for Monitoring Indian Economy, a private research firm. At the same time, the workforce shrank as millions of people dejected over weak job prospects pulled out, a situation that was exacerbated by Covid-19 lockdowns. The labor force participation rate -- meaning people who are working or looking for work -- has dropped to just 40% of the 900 million Indians of legal age, from 46% six years ago, according to the CMIE. By comparison, the participation rate in the US was 62.2% in June.

Riaz Haq said...

Annual percentage growth rate of GDP at market prices based on constant local currency. Aggregates are based on constant 2010 U.S. dollars. GDP is the sum of gross value added by all resident producers in the economy plus any product taxes and minus any subsidies not included in the value of the products. It is calculated without making deductions for depreciation of fabricated assets or for depletion and degradation of natural resources.
India gdp growth rate for 2021 was 8.95%, a 15.54% increase from 2020.
India gdp growth rate for 2020 was -6.60%, a 10.33% decline from 2019.
India gdp growth rate for 2019 was 3.74%, a 2.72% decline from 2018.
India gdp growth rate for 2018 was 6.45%, a 0.34% decline from 2017.


Annual percentage growth rate of GDP at market prices based on constant local currency. Aggregates are based on constant 2010 U.S. dollars. GDP is the sum of gross value added by all resident producers in the economy plus any product taxes and minus any subsidies not included in the value of the products. It is calculated without making deductions for depreciation of fabricated assets or for depletion and degradation of natural resources.
Pakistan gdp growth rate for 2021 was 6.03%, a 7.36% increase from 2020.
Pakistan gdp growth rate for 2020 was -1.33%, a 3.83% decline from 2019.
Pakistan gdp growth rate for 2019 was 2.50%, a 3.65% decline from 2018.
Pakistan gdp growth rate for 2018 was 6.15%, a 1.72% increase from 2017.

Riaz Haq said...

#India’s current account #deficit expected to deteriorate in FY23. The country’s #trade deficit widened to USD 45.18 billion in April-June 2022 period as compared to USD 5.61 billion recorded in the corresponding period of last year. #Modi #BJP #economy

The widening of current account deficit has depreciated the Indian rupee against the US dollar by 6 per cent since January of 2022, and is on the brink of touching 80 mark.

New Delhi India’s current account deficit, meaning a shortfall between the imports and exports, is expected to deteriorate in 2022-23 if recession concerns do not lead to a sustained and meaningful reduction in the prices of food and energy commodities, the Ministry of Finance said in its latest Monthly Economic Review report.

Softening of global commodity prices may put a leash on inflation, but their elevated levels also need to decline quickly to reduce India’s current account deficit.

A sudden and sharp surge in gold imports amid wedding season, as many weddings were postponed to 2022 from 2021 due to pandemic-induced restrictions, is also now exerting pressure on the trade deficit, it said.

The country’s trade deficit widened to USD 45.18 billion in April-June 2022 period as compared to USD 5.61 billion recorded in the corresponding period of last year.

In order to alleviate the impact, the government recently hiked the customs duty on gold from present 10.75 per cent to 15.0 per cent.

“The deterioration of current account deficit could, however, moderate with an increase in service exports in which India is more globally competitive as compared to merchandise exports,” it said.

The widening of current account deficit has depreciated the Indian rupee against the US dollar by 6 per cent since January of 2022, and is on the brink of touching 80 mark.

“The depreciation (in rupee), in addition to elevated global commodity prices, has also made price-inelastic imports costlier, thereby making it further difficult to reduce the CAD,” it said.

A depreciation in rupee typically makes imported items costlier. India’s forex reserves, in the six months since January 2022, have declined by USD 34 billion.

However, the momentum in the Indian economy is holding up better than expected, despite commodity price shocks in the last four months, the report added.

“After a sluggish start, the seasonal rainfall has picked up and it is geographically well dispersed. That is good news too.”

Anonymous said...

The story is relative to other currencies EUR,JPY,AUD,CAD the INR is stronger than 3 months ago.The story is USD rising not INR falling.PKR otoh has fallen against all currencies!

Z Bukhari said...

According to sources China has proposed two models for revival of Pakistan economy. Currently under discussion and decision might depend on government stability.

- 5 model district in each province to be adopted by China. Direct funding and bureaucratic control from China
- 2 model sectors nation wide to be adopted by China. Agriculture and Electricity being their preference

Current thinking is to choose second option to avoid political churn in provinces. Electricity has been agreed but Agriculture is point of contention.

little_saturn said...

India will have 354 bn$ reserve. India is buying oil from russia and probably it will do with iran in INR. This will further help india to reduce $ deficit.

india has already acheived 10% ethonol blending and will move to 20%. it helps the farmers to get more money and reduce oil bill

solar cost is 1.50 inr where as oil /gas 6.50 inr. india is moving more towards solar which helps to reduce fiscal deficit and handle inflation

India will start to produce from the arabian ocean oil which will further make it reduce oil bills

pakistan can go which ever way it wants to go ; probably it can keep on asking for assistance and corrupt rulers can loot and run away.

Riaz Haq said...

#India's #Rupee Hits Weakest Level Ever Against the #US Dollar. The #Indian #currency has lost about 7 percent of its value against the #dollar this year, a victim of higher #energy prices and #economic uncertainty. #Russia #Ukraine #Modi #Hindutva #BJP

The Indian rupee touched the weakest level on record against the dollar on Tuesday, another victim of higher energy prices and a stronger greenback.

The rupee has lost about 7 percent of its value against the dollar this year as India has spent more to import sources of energy like crude oil, natural gas and coal. Prices of those commodities have climbed after Russia invaded Ukraine.

Another factor behind the decline of the rupee is uncertainty about the global economy that has, in turn, propelled the dollar to a 20-year high against the currencies of its major trading partners. Investors have pulled money out of India and other developing countries and poured it in to the United States, where the Federal Reserve is raising interest rates aggressively to tame inflation.

“A lot of it is dollar strength rather than rupee weakness,” said Rahul Bajoria, the chief economist for India at Barclays. “It still feels like on a relative basis the rupee has done a lot better,” he said, pointing to the steeper declines in the value of the euro and the British pound against the dollar.

On Tuesday, the rupee briefly crossed 80 to the dollar for the first time. The Reserve Bank of India intervened in the market, as it has in recent months, to bid up the currency, according to local media reports.

Like in much of the world, inflation has slowed economic growth this year in India. Reserve Bank officials responded by unexpectedly raising rates in May, and then again in June, to 4.9 percent. But inflation remains around 7 percent, putting pressure on household budgets.

Prime Minister Narendra Modi’s government has cut taxes on fuel and restricted exports of wheat and sugar. And it has bought more Russian oil, which has become cheaper following sanctions imposed by the United States and Europe.

Riaz Haq said...

#Indian #rupee touches another record low to 80.06 against #US dollar as foreign #investors pull out US $30 billion from the nation’s #StockMarket so far this year amid deteriorating current-account deficit & high #energy prices. #forex #Modi #BJP

The rupee declined to as low as 80.06 per dollar on Tuesday before reversing losses as traders cited possible central bank intervention. The currency has been buffeted by nearly $30 billion of foreign outflows from the nation’s equities so far this year -- a record sum -- and concerns over a deteriorating current-account deficit amid elevated oil and commodity prices.

India policymakers have sought to arrest the currency’s decline with a raft of measures -- from intervention to raising duties on gold imports -- with a weaker rupee adding to imported inflation pressures. Other emerging market currencies are also feeling the heat as a hawkish Federal Reserve lures capital toward the US.

“The risks for the rupee remain to weaken further,” said Dhiraj Nim, economist and FX strategist at Australia & New Zealand Banking Group Ltd. “Oil prices, especially, remain a bit volatile, while external headwinds on account of Fed tightening may continue. The trade imbalance also remains wide.”

India’s central bank sees the rupee as moving toward its fair value and will step in to sell dollars from its reserves when it assesses a genuine shortfall, according to people familiar with the matter. Traders cited RBI intervening in the forex market as the currency breached 80 to a dollar.

The currency has declined 7% this year as a shortfall in India’s current account -- the broadest measure of external finances -- will probably widen to 2.9% of gross domestic product in the fiscal year ending March 31, according to a Bloomberg survey in late June, nearly double the level seen in the previous year. The rupee ended little changed at 79.95 a dollar on Tuesday.

India’s central bank is for an orderly appreciation or depreciation in the currency and is intervening in all market segments to curb volatility, Governor Shaktikanta Das said earlier this month.

Strategists at Nomura Holdings Inc and Morgan Stanley continue to remain bearish on the rupee, forecasting the currency may decline to 82 to a dollar by September. Options pricing suggest that there is 67% probability for the rupee to decline to that level between now and end-December, up from 50% at the start of July.

The Reserve Bank of India has foreign-exchange reserves of almost $600 billion, which it has been deploying to protect the rupee. Authorities have raised duties on gold import and raised levies on petroleum exports. The monetary authority has also announced measures to draw more forex inflows into the country and allowed rupee settlement of trade.

samir sardana said...

India has a monthly trade deficit,of 25 Billion USD

RBI FX reserves are falling by 10 Billion USD every 14 days

Oil prices will NOT fall

If Oil stays at these levels, then in the next 75 days,RBI FX reserves will be DOWN BY 100 BILLION USD AND THEN WHERE WILL BE THE INR ?


And if the RBI defends the INR - RBI will lose another 100 Billion USD


Riaz Haq said...

#US #Dollar is Very Strong Against All Currencies, not Just #Pakistan's. Fortune 500 companies blame the strong US$ for disappointing earnings & lower forecasts: ‘The dollar might have even had a stronger quarter than we did, which is kind of amazing.’

In earnings call after earnings call, U.S. corporate leaders are delivering the same warning—that the strong U.S. dollar will be a drag on their profits.

“The dollar might have even had a stronger quarter than we did, which is kind of amazing,” said Salesforce CEO Marc Benioff on the company's May 31 earnings call, explaining why the company was lowering its sales guidance.

During the company's second quarter earnings call on Monday, IBM CFO Jim Kavanaugh said it wasn't "immune" to the strong dollar, "especially when currencies move at the rate, breadth, and magnitude that we've seen." IBM said the strong dollar is likely to wipe $3.5 billion off its full-year revenue, sending shares 6.9% lower in early trading on Tuesday.

Netflix CFO Spencer Neumann on Tuesday told investors that "the strengthening of the U.S. dollar is a major outlier, and we just need to kind of work through that." Netflix blamed a strong dollar for their Q2 revenue growth coming in below its forecast; it reported an increase of 8.6% versus a forecast of 9.7%.

On Tuesday, pharmaceutical manufacturer Johnson & Johnson cut its full-year profit guidance, saying that the strong dollar might lower its sales overseas.

Microsoft also trimmed its revenue forecasts based on the strengthening dollar.

An analysis from Bloomberg found that references to “foreign exchange” in earnings calls have hit a three-year high this season.

USD to euro near parity
The U.S. dollar has gained against almost every other currency in recent months. It’s up 11% versus the euro so far this year, with the exchange rate between the two currencies hitting parity for the first time in 20 years. The USD is also up 13% against the British pound, 20% against the Japanese yen, and 6% against the Chinese renminbi. The U.S. Federal Reserve's interest rate hikes are helping drive up the value of the U.S. dollar, and traders are seeking safety in the U.S. dollar and U.S. assets amid geopolitical uncertainty.

The strong U.S. dollar is a windfall for some holders of the currency, like U.S. tourists on shopping sprees in Europe. But it can weigh on corporate earnings, especially at firms that do a sizable share of their business overseas.

Why is a strong USD bad for corporate earnings?
A strong USD makes U.S. manufactured goods more expensive overseas, so foreign buyers need more local currency to pay for the U.S.-made items they bring into other countries. The rising cost of U.S. goods in foreign currencies incentivizes importers to seek goods made elsewhere, disadvantaging U.S. manufacturers. U.S. companies may try to cut costs to keep their prices competitive and preserve their margins.

A strong dollar also deflates the value of revenue generated overseas once it's converted into U.S. dollars. That poor conversion rate can hit the bottom line of U.S. companies that do a lot of their business in foreign markets, like the U.S. tech sector, which generates 60% of its revenue in foreign markets, according to Goldman Sachs.

Together, these factors can exert a small but visible drag on corporate earnings. Credit Suisse estimates that a 8-10% increase in the dollar’s value leads to a 1% fall in U.S. corporate profits.

Anonymous said...

India's external debt rose from 83 billion USD in 1991 to a record high of 620 billion USD in 2022.

That is seven fold increase!

Riaz Haq said...

Anon: "India's external debt rose from 83 billion USD in 1991 to a record high of 620 billion USD in 2022. That is seven fold increase"

India's GDP has also grown from $320 billion in 1991 to $3.2 trillion in 2021...that is 10 fold increase, while India's debt has grown 7 fold. That's not bad.

Ahmed said...

Dear Sir

I hope you are doing well , sir I was having a debate with an Indian and I was trying to convience him that SUPARCO (Space Agency of Pakistan ) has already made its satelite called “ BADAR” , after reading my comments ,Indians proudly and confidently claim that developing and designing a satelite is a child’s play , according to them what is more important is to launch those satelite in space and they claim that India has its own launching pad for satelite .

Sir can you pls throw some light on this ?
Is it true that it is easy to design and develope a satelite and is it true that the launching pad of ISRO(Indian Space Research Organization) is indigenously made by them ?

I would appreciate if you could tell me something about it .


Riaz Haq said...

Kaushik Basu
IMF's just-released World Economic Outlook shows, over 3 years, 2020-2, India's annual growth is 2.9%, behind China (4.5%) & low-income country average (3.1%). This is not where India was; its economy has enough strength. This is the price of divisive politics & erosion of trust.

Riaz Haq said...

#India’s #Trade #Deficit Widens to Record On Costly Imports, Weak #Rupee. The gap between #exports and #imports widened to $31.02 billion in July, from $26.18 billion in June. #Modi #BJP #Economy #Inflation #Currency #Forex

India’s trade deficit ballooned to a record high in July, as elevated commodity prices and a weak rupee inflated the country’s import bill.

The gap between exports and imports widened to $31.02 billion in July, from $26.18 billion in June, B.V.R Subrahmanyam, India’s trade secretary, told reporters at a briefing in New Delhi Tuesday, citing preliminary data. The trade deficit in June was a record before the latest numbers were released.

Riaz Haq said...

#India, #SriLanka, #Pakistan #debt woes evoke memories of 1997 #Asian currency crisis. Back then, #Thailand’s devaluation led to a #global #market collapse. A sequel might be in the works. #PKR #INR #inflation #economy #rupee

Pakistan is scrambling for a bailout to avert a debt default as its currency plummets. Bangladesh has sought a preemptive loan from the International Monetary Fund. Sri Lanka has defaulted on its sovereign debt and its government has collapsed. Even India has seen the rupee plunge to all-time lows as its trade deficit balloons.

Economic and political turbulence is rattling South Asia this summer, drawing chilling comparisons to the turmoil that engulfed neighbors to the east a quarter century ago in what became known as the Asian Financial Crisis.

Riaz Haq said...

#India's status as world's fastest growing major #economy to be short-lived. It will decelerate to 4.5% in October-December 2022.The nation is grappling with persistently high #unemployment and #inflation - Reuters poll. #Modi #Hindutva via @YahooFinance

By Arsh Tushar Mogre

BENGALURU (Reuters) - India likely recorded strong double-digit economic growth in the last quarter but economists polled by Reuters expected the pace to more than halve this quarter and slow further toward the end of the year as interest rates rise.

Asia's third-largest economy is grappling with persistently high unemployment and inflation, which has been running above the top of the Reserve Bank of India's tolerance band all year and is set to do so for the rest of 2022.

Growth this quarter is predicted to slow sharply to an annual 6.2% from a median forecast of 15.2% in Q2, supported mainly by statistical comparisons with a year ago rather than new momentum, before decelerating further to 4.5% in October-December.


The median expectation for 2022 growth was 7.2%, according to an Aug. 22-26 Reuters poll, but economists said that the solid growth rate masks how rapidly the economy was expected to slow in coming months.

"Even as India remains the fastest-growing major economy, domestic consumption will perhaps not be strong enough to drive growth further as unemployment remains high and real wages are at a record low level," said Kunal Kundu, India economist at Societe Generale.

"By supporting growth through investment, the government has only fired on one engine while forgetting about the impetus which domestic consumption provides. This is why India's growth is still below its pre-pandemic trend."

The economy has not grown fast enough to accommodate some 12 million people joining the labour force each year.

Meanwhile the RBI, a relative laggard in the global tightening cycle, is set to raise its key repo rate by another 60 basis points by the end of March to try to bring inflation within the tolerance limit. [ECILT/IN]

That follows three interest rate rises this year totalling 140 basis points, and would take the repo rate to 6.00% by end-Q1 2023.

While the central bank's mandated target band is 2%-6%, inflation was expected to average 6.9% and 6.2% this quarter and next, respectively, before falling just below the top end of the range to 5.8% in Q1 2023. That is roughly in line with the central bank's projection.

"Despite signs of a cool-off in price pressures ... it is premature to go easy on the inflation fight given considerable uncertainties from geopolitical risks and hard landing risks in major economies," said Radhika Rao, senior economist at DBS.

The economy is also enduring inflation pressure from a weak rupee, which for months has been trading close to 80 to the U.S. dollar, a level the central bank has been defending in currency markets by selling dollar reserves.

The latest Reuters poll also showed India's current account deficit swelling to 3.1% of gross domestic product this year, the highest in at least a decade, which may put further pressure on the currency.

Riaz Haq said...

Ritesh Kumar Singh
We shouldn't get carried away by 13.5% #GDPgrowth in Q1 FY2022/23.
Q1FY2020/21: INR 35.5 trillion
Q1FY2022/23: INR 36.85 trillion
The increase in 3 years: INR 1.35 trillion or 3.9% in 3 years.
#economy #India #IndiaAt75


Q1 GDP growth misses estimates despite low base; govt spending subdued
13.5% expansion in June QTR despite low base; GVA at basic prices up 12.7%

Keeping the two pandemic years of 2020 and 2021 out, Q1 real GDP in 2022-23 is only 3.8 per cent higher than in the equivalent quarter of 2019-20. Gross value added (GVA) at basic prices grew at 12.7 per cent in the June quarter while nominal GDP was up 26.7 per cent, reflecting elevated inflationary pressures in the economy.

Growth in private final consumption expenditure, or private spending, grew at a robust 25.9 per cent with pent-up demand kicking in as consumers felt confident to spend. Government spending, however, grew only 1.3 per cent, signalling that both the Central and state governments kept their expenditure in check during the quarter.

Gross fixed capital formation (GFCF), which represents investment demand in the economy, grew at a robust 20.1 per cent. However, compared to the pre-pandemic period of FY20, GFCF grew only 6.7 per cent.

On the supply side, manufacturing grew by a disappointing 4.8 per cent. Despite 25.7 per cent growth in trade, hotel, transport services, the sector, with the highest contribution to GDP, is still 15.5 per cent below the pre-pandemic level of the equivalent quarter in FY20.

The labour-intensive construction sector grew 16.8 per cent but it is barely above the pre-pandemic level, growing 1.2 per cent.

Madhavi Arora, lead economist, Emkay Global Financial Services, said. “We maintain growth may remain at 7 per cent for the year, albeit with downside risks. Going ahead, even as recovery in domestic economic activity is yet to be broad-based, global drags in the form of still elevated prices, shrinking corporate profitability, demand-curbing monetary policies and diminishing global growth prospects weigh on the growth outlook.”

Nikhil Gupta, chief economist of Motilal Oswal, said assuming no change in projections by the RBI for the rest of the year, the first-quarter data suggested the central bank’s FY23 growth forecast would be revised to 6.7 per cent from 7.2 per cent.

The RBI expected 16.2 per cent growth in Q1, with 6.2, 4.1, and 4 per cent growth in the subsequent quarters.

Aurodeep Nandi, India economist and vice-president at Nomura, said even if one were to discount the low base, this marked a stellar rise in sequential momentum with post-pandemic tailwinds lifting GDP growth in the June quarter.

Riaz Haq said...

With India being the world's fastest growing major economy, its lead over the U.K. will widen in the next few years

India has overtaken the U.K. to become the world's fifth-largest economy and is now behind only the US, China, Japan and Germany, according to IMF projections.

A decade back, India was ranked 11th among the large economies while the U.K. was at the fifth position.

With record beating expansion in the April-June quarter, the Indian economy has now overtaken the U.K., which has slipped to the sixth spot.

The assumption of India overtaking the U.K. is based on calculations by Bloomberg using the IMF database and historic exchange rates on its terminal.

"On an adjusted basis and using the dollar exchange rate on the last day of the relevant quarter, the size of the Indian economy in 'nominal' cash terms in the quarter through March was $854.7 billion. On the same basis, the U.K. was $816 billion," stated a Bloomberg report.

With India being the world's fastest growing major economy, its lead over the U.K. will widen in the next few years.

"Proud moment for India to pip the U.K., our colonial ruler, as the 5th largest economy: India $3.5 trillion vs UK $3.2 trillion. But a reality check of population denominator: India: 1.4 billion vs UK 0.068 billion. Hence, per capita GDP we at $2,500 vs $47,000. We have miles to go... Let's be at it!," Uday Kotak, CEO of Kotak Mahindra Bank, said in a tweet.

India has a population 20 times that of the U.K. and so its GDP per capita is lower.

"We just became the 5th largest #economy in the world, surpassing the U.K.!," tweeted Anil Agarwal, chairman of mining giant Vedanta group. "What an impressive milestone for our rapidly growing Indian economy... In a few years, we will be in Top 3!"

India's GDP expanded 13.5% in the April-June quarter, the quickest pace in a year, to retain the world's fastest growing economy tag but rising interest costs and the looming threat of a recession in major world economies could slow the momentum in the coming quarters.

Gross domestic product (GDP) growth of 13.5% year-on-year compares to a 20.1% expansion a year back and 4.09% growth in the previous three months to March, according to official data released earlier this week.

The growth, though lower than the Reserve Bank of India (RBI) estimate of 16.2%, was fuelled by consumption and signalled a revival of domestic demand, particularly in the services sector.

Pent-up demand is driving consumption as consumers, after two years of pandemic restrictions, are stepping out and spending. The services sector has seen a strong bounce back that will get a boost from the festival season next month.

But the slowing growth of the manufacturing sector at 4.8% is an area of worry. Also, imports being higher than exports is a matter of concern.

Additionally, an uneven monsoon is likely to weigh upon agriculture growth and rural demand.

The GDP print will, however, allow the RBI to focus on controlling inflation, which has stayed above the comfort zone of 6% for seven straight months.

The central bank has raised the benchmark policy rate by 140 basis points in three installments since May and has vowed to do more to bring inflation under control.

Besides tighter monetary conditions, Asia's third-largest economy faces headwinds from higher energy and commodity prices that are likely to weigh on consumer demand and companies' investment plans.

Also, consumer spending, which accounts for nearly 55% of economic activity, has been hit hard by soaring food and fuel prices.

The GDP growth in the first quarter of the current fiscal was higher than China's 0.4% expansion in April-June.

Riaz Haq said...

From The Print News Youtube channel:

India’s Forex reserve lose $80 bn in 8 months as RBI defends rupee, quarterly CAD at alarming level


Indias foreign exchange reserves fall to lowest in 23 months

The Reserve Bank of India’s (RBI’s) headline foreign exchange reserves declined by $7.9 billion to $553.11 billion in the week ended September 2, the latest central bank data showed.

The reserves are at their lowest since October 9, 2020, the RBI data showed. Analysts cited the RBI’s defence of the rupee through dollar sales amid a globally strengthening greenback as one of the reasons for the fall in reserves.

Incidentally, during the week that ended September 2, the rupee marked a fresh intraday low of 80.13 per US dollar.


Why are India's foreign reserves depleting, and what could it mean for the country? - BusinessToday

Riaz Haq said...

Strong #US #Dollar Spells Trouble for World #Economy. Its rise being felt in #fuel and #food shortages in #SriLanka, in #Europe’s record #inflation, in #Japan’s exploding #trade deficit, #Pakistan's #IMF bailout and #Bangladesh seeking IMF help via @WSJ

For the U.S., a stronger dollar means cheaper imports, a tailwind for efforts to contain inflation, and record relative purchasing power for Americans. But the rest of the world is straining under the dollar’s rise.

“I think it’s early days yet,” said Raghuram Rajan, a finance professor at the University of Chicago’s Booth School of Business. When he served as governor of the Reserve Bank of India last decade, he complained loudly about how Fed policy and a strong dollar hit the rest of the world. “We’re going to be in a high-rates regime for some time. The fragilities will build up.”


The U.S. dollar is experiencing a once-in-a-generation rally, a surge that threatens to exacerbate a slowdown in growth and amplify inflation headaches for global central banks.

The dollar’s role as the primary currency used in global trade and finance means its fluctuations have widespread impacts. The currency’s strength is being felt in the fuel and food shortages in Sri Lanka, in Europe’s record inflation and in Japan’s exploding trade deficit.

This week, investors are closely watching the outcome of the Federal Reserve’s policy meeting for clues about the dollar’s trajectory. The U.S. central bank is expected Wednesday to raise interest rates by at least 0.75 percentage point as it fights inflation—likely fueling further gains in the greenback.

In a worrying sign, attempts from policy makers in China, Japan and Europe to defend their currencies are largely failing in the face of the dollar’s unrelenting rise.

Last week, the dollar steamrolled through a key level against the Chinese yuan, with one dollar buying more than 7 yuan for the first time since 2020. Japanese officials, who had previously stood aside as the yen lost one-fifth of its value this year, began to fret publicly that markets were going too far.

The ICE U.S. Dollar Index, which measures the currency against a basket of its biggest trading partners, has risen more than 14% in 2022, on track for its best year since the index’s launch in 1985. The euro, Japanese yen and British pound have fallen to multidecade lows against the greenback. Emerging-market currencies have been battered: The Egyptian pound has fallen 18%, the Hungarian forint is down 20% and the South African rand has lost 9.4%.

The dollar’s rise this year is being fueled by the Fed’s aggressive interest-rate increases, which have encouraged global investors to pull money out of other markets to invest in higher-yielding U.S. assets. Recent economic data suggest that U.S. inflation remains stubbornly high, strengthening the case for more Fed rate increases and an even stronger dollar.

Dismal economic prospects for the rest of the world are also boosting the greenback. Europe is on the front lines of an economic war with Russia. China is facing its biggest slowdown in years as a multidecade property boom unravels.

Riaz Haq said...

Strong #US #Dollar Spells Trouble for World #Economy. Its rise being felt in #fuel and #food shortages in #SriLanka, in #Europe’s record #inflation, in #Japan’s exploding #trade deficit, #Pakistan's #IMF bailout and #Bangladesh seeking IMF help via @WSJ

For the U.S., a stronger dollar means cheaper imports, a tailwind for efforts to contain inflation, and record relative purchasing power for Americans. But the rest of the world is straining under the dollar’s rise.

“I think it’s early days yet,” said Raghuram Rajan, a finance professor at the University of Chicago’s Booth School of Business. When he served as governor of the Reserve Bank of India last decade, he complained loudly about how Fed policy and a strong dollar hit the rest of the world. “We’re going to be in a high-rates regime for some time. The fragilities will build up.”


On Thursday, the World Bank warned that the global economy was heading toward recession and “a string of financial crises in emerging market and developing economies that would do them lasting harm.”

The stark message adds to concerns that financial pressures are widening for emerging markets outside of well-known weak links such as Sri Lanka and Pakistan that have already sought help from the International Monetary Fund. Serbia became the latest to open talks with the IMF last week.

“Many countries have not been through a cycle of much higher interest rates since the 1990s. There’s a lot of debt out there augmented by the borrowing in the pandemic,” said Mr. Rajan. Stress in emerging markets will widen, he added. “It’s not going to be contained.”

A stronger dollar makes the debts that emerging-market governments and companies have taken out in U.S. dollars more expensive to pay back. Emerging-market governments have $83 billion in U.S. dollar debt coming due by the end of next year, according to data from the Institute of International Finance that covers 32 countries.

Riaz Haq said...

India’s current account deficit (CAD) likely widened to its highest in nearly a decade in the June 2022 quarter to USD 30.5 billion or 3.6 per cent of GDP, as per a Reuters’ poll of economists held between 9-15 September 2022. Economists opine that soaring global commodity prices and Rupee at 80 contributed to the worsening trade gap and bloating the CAD. Forecasts for CAD ranged between USD 28.5-34.0 billion or 2.4 per cent to 5 per cent of GDP.'s%20current%20account%20deficit%20(CAD,between%209%2D15%20September%202022.

Riaz Haq said...

#India central bank chief Das raises interest rates 4th time in 2022, says global #economic outlook remains bleak, with #recession fears mounting & #inflation persisting at “alarmingly high levels”. #Indian forex reserves down $100 billion, #rupee weak.

India’s central bank raised its key interest rate by half a percentage point, as efforts to rein in inflation and protect an economic recovery have been complicated by its currency’s decline against the U.S. dollar.

On Friday, the Reserve Bank of India raised its overnight lending rate to 5.90% from 5.40%, the fourth increase since it began raising rates following an unscheduled meeting in May, prompted by global inflationary pressures exacerbated by Russia’s invasion of Ukraine.

RBI Gov. Shaktikanta Das said that having witnessed the major shocks of the coronavirus pandemic and the conflict in Ukraine, the global economy is now in the midst of a third major shock arising from aggressive monetary policy tightening from advanced economies that is having spillover effects on the rest of the world.

“There is nervousness in financial markets with potential consequences for the real economy and financial stability,” Mr. Das said. “The global economy is indeed in the eye of a new storm.”

The pace at which the U.S. Federal Reserve has raised rates, coupled with growing fears of a global recession, have strengthened the dollar and heaped downward pressure on other currencies. The Fed approved its third consecutive interest-rate rise of 0.75 percentage point last week and signaled additional large increases as inflation remains stubbornly high. Central banks around the world continue to tighten their own monetary policy.

The British pound hit its lowest-ever level against the U.S. dollar this week as investors worried about the government’s plans to cut taxes and the Bank of England warned it would raise interest rates as much as needed to hit its inflation targets. The Chinese yuan slid to its weakest level against the dollar in more than a decade, and Japan intervened in the foreign-exchange market for the first time in 24 years to support the yen.

In India, the rupee is down about 9% this year against the dollar. Despite the RBI’s efforts to defend the currency, it slumped in July past 80 rupees per dollar to record lows. That defense has contributed to an almost $100 billion decrease in India’s foreign-exchange reserves over the past year to $545 billion. The RBI also attributes some of that decrease to the change in value of other currencies it holds.

Mr. Das said the global economic outlook remains bleak, with recession fears mounting and inflation persisting at “alarmingly high levels” across multiple jurisdictions.

“Central banks are charting new territory with aggressive rate hikes even if it entails sacrificing growth in the near-term,” he said.

Emerging-market economies in particular, Mr. Das said, are confronting challenges of slowing global growth, elevated food and energy prices, debt distress and sharp currency depreciations. Despite the unsettling global environment, he added, the Indian economy remains resilient.

Robert Carnell, Asia-Pacific chief economist at ING Bank, said a weak rupee was more troublesome from the point of view of imports becoming more expensive rather than from any external debt issue, given India’s debt levels remained relatively low.

Mahesh Vyas, the managing director of the Centre for Monitoring Indian Economy, said while the principal objective of the RBI’s currency intervention is to avoid volatility, support for the rupee for any given value is futile.

“Government efforts can delay the slide of the rupee but it cannot stop it,” he said.

Riaz Haq said...

#India's #forex reserves drop to $524 billion, the lowest since July 2020.

Riaz Haq said...

#Indian #rupee marks biggest monthly losing streak since 1985, its slide for this year is nearly 11% against #USD. #India's currency has declined in each of the 10 months this year to notch its biggest losing streak in almost 4 decades. via @YahooFinance

The Indian rupee has declined in each of the ten months this year to notch its biggest losing streak in almost four decades as the U.S. Federal Reserve's hawkish stance on monetary policy catapulted the dollar to two-decade highs.

The dollar index is up 16% this year, having scaled 114.8-levels last month to trade near its 2002 peak. Its ascent has pressured currencies globally, especially ones in emerging Asian markets.

The Indian rupee fell 1.8% against the dollar in October, taking its slide for the year to nearly 11%.

Surging oil prices due to the Russia-Ukraine conflict and weakness in the Chinese yuan have only piled on more pressure on the rupee and helped send it to a record low of 83.29 per dollar earlier this month.

The rupee's losses have been deeper in the past two months, with market participants reckoning that the Reserve Bank of India let the currency slide after having helped hold it at the 79-80 levels for a long time.

Almost all traders and economists expect there will be no let-up in the pressure on the rupee for the rest of the year as the Fed stays on its aggressive rate-hike path after making fighting inflation its priority.

"This week, the Fed's upcoming meeting would be crucial for the rupee outlook. It could come under pressure in case Fed indicates aggressive tightening path in the future," HDFC Bank economists wrote in a note.

"Broadly, 81.80 to 82.00 seems a strong support zone for the USD/INR pair. As long as it trades above this convincingly, one can expect a U-turn towards 82.80 to 83.00 levels," said Amit Pabari, managing director at consultancy firm CR Forex Advisors.

Riaz Haq said...

India's current account gap widens to 9-year high

MUMBAI, Dec 29 (Reuters) - India's current account deficit widened in the July-September quarter as high commodity prices and a weak rupee increased the country's trade gap, data from the Reserve Bank of India (RBI) showed on Thursday.

In absolute terms, the current account deficit (CAD) (INCURA=ECI) was $36.40 billion in the second quarter of fiscal year 2022/23, its highest in more than a decade. As a percentage of GDP, it was 4.4%, its highest since the June quarter of 2013.

The CAD was $18.2 billion, or 2.2% of GDP, in the preceding April-June quarter, while the deficit was $9.7 billion, or 1.3% of GDP, in the same quarter a year earlier, the release showed.

In a statement, the RBI linked the widening deficit to the increase of "the merchandise trade deficit to $83.5 billion from $63.0 billion in Q1 2022/23 and an increase in net outgo under investment income".

In its Financial Stability Report released after the data, it said the widened trade deficit reflected "the impact of slowing global demand on exports, even as growth in services exports and remittances remained robust".

The median forecast of 18 economists in a Dec. 5-14 Reuters poll was for a $35.5 billion CAD in the July-September quarter.

The RBI said services exports reported growth of 30.2% on a year-on-year (y-o-y) basis, driven by exports of software, business and travel services, while net services receipts increased sequentially and y-o-y.

Private transfer receipts, mainly representing remittances by Indians employed overseas, rose by 29.7% to $27.4 billion from a year earlier.

Riaz Haq said...

Analysis: India's surging services exports may shield economy from external risks

IT services still accounted for 45% of India's total services exports in April-December.

Professional and management consulting grew the fastest - at a 29% compounded annual growth rate over the last three years, as per estimates by economists at HSBC Securities and Capital Markets.

The recent growth in services exports has been largely powered by global capability centres, which have started to offer global clients a range of high-end and critical solutions such as accounting and legal support.

This, together with a drop in merchandise trade deficit, resulted in the current account deficit shrinking more than expected to $18.2 billion, or 2.2% of GDP.


A surge in India's services exports, which hit a record high in the October-December quarter, is expected to shield the economy from external risks as a slowing global economy will likely weigh on the country's merchandise exports.

Service exports are no longer being driven by IT services alone but also by more lucrative offerings such as consulting and research and development, analysts and economists told Reuters.

India's services exports rose 24.5% on year in October-December 2022, hitting a record $83.4 billion during the quarter, data released by the Reserve Bank of India (RBI) on Friday showed.

The services surplus, which deducts any imports in the category, also rose 39.21% to a record $38.7 billion.

This, together with a drop in merchandise trade deficit, resulted in the current account deficit shrinking more than expected to $18.2 billion, or 2.2% of GDP.

"We expect services exports to grow to over $375 billion by March 2024, as compared to $320-350 billion for the year ending March 2023," said Sunil Talati, chairman of the Services Export Promotion Council.

Services exports will likely surpass goods exports by March 2025, he said.

October-December merchandise exports stood at $105.6 billion, according to latest RBI data.


As a result, such exports will hold up better compared to goods exports in the face of a weakening global economy, analysts said.

Over the last two to three years, there has been a rapid growth in global capability centres, said Sangeeta Gupta, chief strategy officer at software industry lobby group Nasscom.

Nasscom estimates that India is home to over 45% of such global capability centres in the world.

According to Pranjul Bhandari, chief India economist at HSBC Securities and Capital Markets, such centres started off providing support functions, but they have now moved up the ladder to tech enablement, business operations, capability development, and even R&D and business development.

While U.S. companies were the first movers in India, a lot of companies from Europe, Australia and Asia are also exploring stepping up their operations, Nasscom's Gupta said.

An acceleration in digitalisation after the Covid crisis and a lack of adequate tech talent in some of these countries are key factors, she added.

Sectors such as tourism, education, financial services and health also contributed to India's higher service exports.

Riaz Haq said...

US becomes India's biggest trading partner in FY23: Report

(Indian) Exports to China dipped by about 28 per cent to USD 15.32 billion in 2022-23, while imports rose by 4.16 per cent to USD 98.51 billion in the last fiscal. Trade gap widened to USD 83.2 billion in the last fiscal as against USD 72.91 billion in 2021-22.


The US has emerged as India's biggest trading partner in 2022-23 on account of increasing economic ties between the two countries.

According to the provisional data of the commerce ministry, the bilateral trade between India and the US has increased by 7.65 per cent to USD 128.55 in 2022-23 as against USD 119.5 billion in 2021-22. It was USD 80.51 billion in 2020-21.

Exports to the US rose by 2.81 per cent to USD 78.31 billion in 2022-23 as against USD 76.18 billion in 2021-22, while imports grew by about 16 per cent to USD 50.24 billion, the data showed.

On the other hand, during 2022-23, India's two-way commerce with China declined by about 1.5 per cent to USD 113.83 billion as against USD 115.42 billion in 2021-22.

Exports to China dipped by about 28 per cent to USD 15.32 billion in 2022-23, while imports rose by 4.16 per cent to USD 98.51 billion in the last fiscal. Trade gap widened to USD 83.2 billion in the last fiscal as against USD 72.91 billion in 2021-22.

Experts believe that the trend of increasing bilateral trade with the US will continue in the coming years also as New Delhi and Washington are engaged in further strengthening the economic ties.

Federation of Indian Export Organisations (FIEO) President A Sakthivel said that increasing exports of goods such as pharmaceutical, engineering and gems and jewellery is helping India to push its shipments to America.

"The trend of increasing trade with the US will continue in the coming months also," he said.

FIEO Vice President Khalid Khan said India is emerging as a trusted trading partner and global firms are reducing their dependence only on China for their supplies and are diversifying business into other countries like India.

"The bilateral trade between India and the US will continue to grow as our exporters are getting good orders from that country," Khan said.

Rakesh Mohan Joshi, Director of the Indian Institute of Plantation Management (IIPM), Bangalore, too said that India provides huge trade opportunities for the US as India is the world's third largest consumer market and the fastest growing market economy.

"Major export items from India to the US include petroleum, polished diamonds, pharmaceutical products, jewellery, light oils and petroleum, frozen shrimp, made ups etc. whereas major imports from the US include petroleum, rough diamonds, liquified natural gas, gold, coal, waste and scrap, almonds etc," Joshi said.

America is one of the few countries with which India has a trade surplus. In 2022-23, India had a trade surplus of USD 28 billion with the US.

The data showed that China was India's top trading partner since 2013-14 till 2017-18 and also in 2020-21. Before China, the UAE was the country's largest trading partner.

In 2022-23, the UAE with USD 76.16 billion, was the third largest trading partner of India. It was followed by Saudi Arabia (USD 52.72 billion), and Singapore (USD 35.55 billion).

Riaz Haq said...

India's forex reserves post steepest weekly decline in over 6 months

MUMBAI, Aug 25 (Reuters) - India's foreign exchange reserves (INFXR=ECI) declined to a near two-month low of $594.89 billion as of Aug. 18 and posted their steepest weekly fall in more than six months, data from the country's central bank showed on Friday.

They fell by $7.27 billion from the prior week, the sharpest decline since the week ended Feb. 10.

The changes in foreign currency assets, expressed in dollar terms, include the effects of appreciation or depreciation of other currencies held in the Reserve Bank of India's (RBI) reserves.

The forex reserves include India's Reserve Tranche position in the International Monetary Fund.

The RBI also intervenes in the spot and forwards markets to prevent runaway moves in the rupee.

In the week for which the forex reserves data pertains, the rupee dropped to a 10-month low of 83.16 against the U.S. dollar, prompting intervention from the RBI, as per traders.

Earlier this week, RBI Governor Shaktikanta Das reiterated that the central bank has no specific target for the rupee.

Riaz Haq said...

From Google Gen AI

India's current account deficit widened to $13.4 billion in Q4FY22, which is 1.5% of GDP. The capital account deficit was $1.7 billion in Q4FY22, which was the first deficit since the Taper Tantrum episode in September 2013.
The current account tracks the flow of imports and exports.
A current account deficit occurs when the inflow of foreign currency from exports is less than the outflow of foreign currency from imports.
The capital account tracks the flow of assets and liabilities.
A capital account deficit occurs when the debit items are more than the credit items. This indicates a net outflow of capital from the country.
The sum of the current and capital accounts is always zero. This means that when a country has a deficit in its current account, it necessarily has a surplus in its capital account and vice versa.
India generally has a capital account surplus because it attracts a large share of foreign investments.

Riaz Haq said...

Unlike China, which has developed its end-to-end supply chain solutions over the last four decades, India’s manufacturing sector has been small relative to its agricultural sector. India has yet to develop its capability to produce electronic parts domestically. India imported $12 billion worth of China-manufactured electronic parts in a five-month span last year, making up more than a quarter of its China imports. Netherlands-based Philips said in October that, despite the call to derisk from China, it will continue to source Chinese components including nuts, bolts, plastics, electronics, monitors, and other semi-finished goods for its operations around the world.

To develop a connected national market, the Indian government is building motorways, airports, and railroads to stimulate material and people movements between states. However, even when this new infrastructure is put in place, there will be wide gaps between states. GDP per person in Uttar Pradesh is around $4,000, compared to $10,000 in Kerala.

Besides the income gap, there is a cultural gap. Unlike China, where 92% of the population belongs to the Mandarin-speaking Han ethnic group, India has a very diverse population that speaks many languages. Cultural differences, language problems, and state-specific business regulations make expanding a business from one state to another a challenge.