$400 B and Count­ing: In­dia Puts Up A Spe­cial FX Show

Cur­rent ac­count deficit widens to 2.4% of GDP in June quar­ter; ex­ports re­bound in Au­gust

The Economic Times - - Front Page - 7.2 12.5 6.2

Gay­a­tri Nayak & At­madip Ray

Mum­bai | Kolkata: Four years af­ter a cur­rency cri­sis singed In­dian fi­nan­cial as­sets, the coun­try’s for­eign ex­change re­serves have surged to a record $400 bil­lion, up 45% from the trough, bol­ster­ing the hope that there’s enough cush­ion to face any head­winds orig­i­nat­ing in global mar­kets.

In­dia now ranks eighth in for­eign ex­change re­serves in a list that’s headed by China ($3.09 tril­lion) and Ja­pan ($1.2 tril­lion).

The record amount of re­serves ac­cu­mu­lated, mainly through the flow of funds from port­fo­lio in­vestors and for­eign di­rect in­vest­ment in man­u­fac­tur­ing as well as ser­vices, re­flects the strength of In­dia’s macro econ­omy and in­vestor faith in growth.

But the swelling dol­lar cor­pus has meant a stronger ru­pee, hurt­ing ex­ports amid ris­ing im­ports, thus pos­ing a cur­rency man­age- For­eign di­rect in­vest­ment $ BIL­LION

For­eign port­fo­lio in­vestors $ BIL­LION

Val­u­a­tion gain $ BIL­LION ment chal­lenge for the Re­serve Bank of In­dia (RBI).

The cur­rent ac­count deficit (CAD) widened to 2.4% of gross do­mes­tic prod­uct in the June quar­ter, up from 0.1% in the year-ago pe­riod, the cen­tral bank said. To be sure, a re­cov­ery in global de­mand helped In­dia’s ex­ports re- bound in Au­gust af­ter slow­ing in July, the gov­ern­ment said on Fri­day in a sep­a­rate data re­lease. But im­ports out­paced ex­ports and grew 21%, widen­ing the trade deficit to $11.6 bil­lion from $7.7 bil­lion in the year-ago pe­riod.

“Record high for­eign re­serves, mainly borne out of strong port- fo­lio in­flows, re­in­force in­vestors’ pos­i­tive view on the econ­omy, be­yond the at­trac­tion of higher yields and a sta­ble cur­rency,” said Rad­hika Rao, econ­o­mist at DBS Bank in Sin­ga­pore. “With the cen­tral bank in­ter­ven­ing heav­ily in the for­wards space, the re­serves stock is bound to climb fur­ther as those swaps ma­ture.”

For­eign ex­change re­serves stood at $400.73 bil­lion for the week ended Septem­ber 8, RBI said on Fri­day. Of this, about 6% was con­trib­uted by cur­rency move­ments with the dol­lar de­pre­ci­at­ing across a range of cur­ren­cies.

In­dia was among those at the re­ceiv­ing end of global fi­nan­cial tur­moil in 2013 when then US Fed­eral Re­serve chair­man Ben Ber­nanke roiled the mar­kets with com­ments on the pos­si­ble ta­per­ing of the quan­ti­ta­tive eas­ing that be­gan af­ter the 2008 global fi­nan­cial cri­sis.

(All data for April-June 2017)

“The com­pany is cur­rently ac­tively work­ing with the GoI (gov­ern­ment of In­dia), Pana­tone and HPIL to fi­nalise the scheme of de­merger and ex­pects that the same shall be fi­nalised some­time in the near fu­ture,” the com­pany had said in its FY17 an­nual re­port.

The Tata group holds a stake of nearly 49% in Tata Com­mu­ni­ca­tions through Pana­tone Fin­vest Ltd, an in­vest­ment arm that holds over 30%, Tata Sons and Tata Power. Ac­cord­ing to a re­cent Mor­gan Stan­ley re­port, the po­ten­tial ben­e­fi­cia­ries of the prop­erty sep­a­ra­tion in­clude the gov­ern­ment (51%), mi­nor­ity hold­ers who sold their stake to Tata in an open of­fer in 2002 (25%), and ex­ist­ing mi­nor­ity share­hold­ers (24%). This last group in­clude Life In­sur­ance Cor­po­ra­tion of In­dia (LIC), Gov­ern­ment Pen­sion Fund Global, Baron Emerg­ing Mar­kets Fund and Amansa Hold­ings.

Ac­cord­ing to sources, the Tata group is ex­pected to hold a 3-4% stake in the land­hold­ing com­pany. It didn’t com­ment on its hold­ing in this en­tity. The Tata Com­mu­ni­ca­tions stock, which has risen nearly 13% in the past month, ended at Rs 707.50, up by 0.31%, on the Bom­bay Stock Ex­change on Fri­day. An­a­lysts at Mor­gan Stan­ley at­trib­uted the surge to the ex­pec­ta­tions of a set­tle­ment on the land. The Tata group ac­quired a 45% stake in VSNL in 2002 in two trans­ac­tions — 25% from the gov­ern­ment and 20% from share­hold­ers via the open of­fer. As part of the di­vest­ment process, the gov­ern­ment di­vided VSNL’s 1,500 acre land­hold­ing into two parts — one stayed with the tele­com oper­a­tor and the other went to what even­tu­ally be­came Hemi­sphere Prop­er­ties in 2005-06. While the Tata group has over time con­sol­i­dated its con­trol over VSNL, it had to sign away rights to the sur­plus land hold­ings.

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