Foreign Institutional Investors (FIIs) withdrawal from India: Has hot destination lost its charm?

INDIA IS said to be a 912 billion dollar economy, which has shown continuous gross domestic product (GDP) growth of over nine per cent for over three years. India has been a hot most favoured destination among investors of the world as has been evident from its swelled forex reserves, which has touched $307 billion as of July 25, 2008. But the statistics suggests that a reversal trend in accumulation of forex reserves of the country has already been started and the country is showing continuous decline of its reserves since month of May, 2008.

We started the year 2008 with forex reserves of United States Dollar (USD) 276 billion and now after seven months, our reserves have increased to USD 307 billion. So India has accumulated USD 31billion in its forex kitty in the first seven months of 2008. In average terms, India was able to add USD 4.42 billion of forex reserves during each month of the first seven months in 2008.

On the other side, at the start of 2007, forex reserves of the country were $177 billion while it had reached $225.35 billion on July 27, 2007. So during seven months period in 2007, the country had added $48.035 billion to its forex reserves. And average works out to be $6.90 billion of forex reserves addition during each of the month of the first seven months in the year 2007.

This shows that during the first seven months of 2008, we have accumulated $17billion less forex reserve compared to the same period in 2007. In terms of each month, in 2008, the country has accumulated $2.43 billion less forex compared to the same period in 2007.

The accumulation pattern of forex reserves in 2008 as revealed from weekly statements of Reserve Bank of India (RBI), showed a continuous accumulation of reserves till May 23, 2008 when our forex reserves had reached $316.171 billion. RBI has brought reversal in accumulation pattern of forex reserves in the country.

After May 23, the country has been witnessing a continuous fall in its forex reserves. From May 23 to July 25, 2008, the forex reserves has decreased from $316.17 billion to $306.68 billion. It means that India’s forex reserves have depleted quietly by over $10.00 billion in just two months.