The Hindu Business Line : Forex reserves exceed external debt

HERE is some data that has value that goes beyond plain symbolism. It captures in one frame the success story with regard to balance of payments management: a story of how a country, with a precarious forex reserves position and on the verge of defaulting on its external payment obligations, has been transformed into possibly the most solvent emerging economy after China.

In March 1991— around the time when it embarked on its economic reforms programme— the country's total foreign exchange reserves stood at a miniscule $5.83 billion, as against an outstanding external debt stock of $83.80 billion. And this $5.83 billion included $3.5 billion worth of gold. Hard currency holdings were just to the tune of $2.25 billion. It is something like you or me incurring loans of Rs 10 lakh and having a bank balance of about Rs 30,000, with Rs 40,000-odd worth of jewellery as back-up, ready to be pawned. A none-too-comfortable, if not disastrous, situation to be in.

But 13 years later, there has been a remarkable turnaround. By end-2003, the total debt stock had climbed by $28 billion to touch $112.10 billion. Alarming? Not really, because over the same period, the country's forex reserves, too, had spurted to $103.15 billion.

According to the Reserve Bank of India's (RBI) latest weekly statistical supplement, forex reserves have shot up further to touch $116.06 billion as on April 9, 2004. This is higher than the outstanding external debt of $112.10 billion for end-2003.

Even assuming that some build-up of debt has taken place since December 2003 and also considering that the forex currency component per se in the $116.06 billion reserves figure is $110.56 billion, the fact remains that the country's forex kitty today provide almost 100 per cent coverage for its outstand external debt.

In other words, the country is in a position to pre-pay its entire debt at one go by dipping into its reserves.

It is something like incurring loans of Rs 10 lakh and having a bank balance of an equivalent sum, as against the earlier Rs 30,000.

Even as far as the accumulation of an additional $28.3 billion of external debt in the post reforms period goes, it may be pointed out that during the last fiscal alone, the country's total forex reserves went up by an astounding $37.53 billion.