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Monday, August 12, 2013

India's balance of payments position in a very precarious situation.

Last week the US dollar-rupee exchange rate hit an all-time low of Rs 61.8 per dollar. India has just US$ 280 bn of forex reserves. Enough to cover only seven months of import bills! This is the lowest import cover since 1996! This is also the lowest import cover among BRIC nations. Everything seems to be working against India. Foreign fund inflows are drying. As per an article in Firstpost, stock markets have witnessed net inflows of US$ 2.3 bn since April 2013. However, there has been an outflow from debt funds of about US$ 5.7 bn. In addition, India has to repay liabilities worth US$ 172 bn by the end of fiscal 2013-14. Given the limited forex reserves, the RBI does not have much ammunition to intervene in the forex market and curb the rupee fall.

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