C. Shivkumar

Bangalore , June 4

FOREIGN currency inflows into the country have substantially come down as most investors have taken a pause and remittances from non-resident Indian depositors have slowed down.

Till April this year, foreign currency inflows were at least $250-300 million per day. This has come down to less than $50 million per day and has resulted in reduction in the accretions to the foreign exchange reserves since April.

Reserves are now at $118.5 billion. In fact, reserves have gone down slightly by $56 million last month, even without any redemption for foreign currency debts.

As a result, premiums have become positive. Forward premiums are currently at 0.3 per cent up to 12 months. However, forwards up to three months are higher at 0.5 per cent. This trend is attributed to most importers preferring forward covers only up to three months.

The bankers said this trend was because substantial volumes of inward remittances on the current account were being deferred. These include remittances by exporters. The bankers said exporters, particularly diamond exporters, were waiting for the rupee to weaken against the dollar further, before bringing in their remittances.

Already most exporters have stopped taking forward cover, a trend visible till April this year. Besides, the bankers said these exporters also reverted to dollar invoicing as opposed to euro or rupee invoicing, after the rupee's drop against the dollar.

Besides, what was beginning to choke the foreign exchange markets was the reduction of non-debt capital flows account, foreign direct investments and non-repatriable rupee deposits. Non-repatriable rupee deposits have considerably eased, bankers said. This was particularly in view of the fears that interest earnings on the deposits would be subjected to tax deductions at source, reducing the earnings of the depositors.

The shrinkage in inflows was also owing to some of the FDIs in pipeline being put on hold due to uncertainty over the Government's policies, said bankers.

One sector where there was a substantial slowdown in investments was insurance. Most insurers had hoped that foreign investment norms would be relaxed to 49 per cent from the current level of 26 per cent. With doubts among the foreign insurance companies about further liberalisation, especially in view of the strident opposition from the Left parties, sources said foreign partners of private sector insurance companies preferred to wait for the Budget before deciding on any additional infusion in to the domestic companies.

In fact, almost all the foreign partners of the domestic private sector insurance companies have sought liberalisation of the equity cap to bring it in line with other financial intermediaries.

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