the falling import cover which has halved to seven months in the past five years, well below the 8-10 months critical for rupee stability. In late August, the RBI had opened a special swap window to supply dollars directly to OMCs after the rupee fell to an all- time low of 68.8250/$. Since then, the currency has recovered 9.3%.
Meanwhile, although it raised concerns about additional fiscal expenditure in the form of increased food subsidies under the Food Security Bill, S&P said India’s external position is an element of strength for the rating, albeit some fragilities. “As of the end of March 2013, India’s foreign currency reserves covered about six months of current account payments. External debt net of liquid assets equaled only 9% of current account receipts (CAR), and the broader measure of net external liabilities to CAR was a bit higher at 53%. These indicators suggest that India does not face the same degree of risks in maintaining the confidence of external creditors as that faced by some other countries at a similar stage of development with more open financial accounts,” the agency noted.
India imported $156.97 billion worth crude oil and products in 2012-13 but the net import bill stood at $98.14 billion after accounting for product exports. Economists apprehended that providing dollars directly to OMCs will eat into India’s forex reserves which stood at $285 billion as on October 25, according to data released by the RBI. While some of the pressure on reserves has eased due to inflows of more than $15 billion via two special swap windows opened by the RBI in early October, these facilities are due to close on November 30. Under these facilities, the RBI had allowed banks to raise Foreign Currency Non Resident Deposits (FCNR) and tier 1 capital and swap it at the RBI at concessional swap rates.“The addition to reserves will provide comfort to the Rupee as it allows RBI greater room to intervene if needed,” said Venkatesh of IDBI Bank.Forex Reserves which had slipped to $274 billion as on September 6, have risen by roughly $ 8 billion since then, which may be partly attributable to valuation effects.