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MUMBAI, Feb. 23

INDIA'S foreign exchange reserves crossed the $50-billion mark on February 15. The forex reserves have increased substantially over the past decade to touch the highest level - $50.208 billion - in the history of the country.

The RBI added about $442 million in the week ended February 15, 2002, as per its Weekly Statistical Supplement.

From a reserve level of less than two weeks of imports - about $975 million by end-June 1991, when India had to ship part of its gold reserves as collateral to avoid debt default - the reserves have risen to a level enough to cover imports of close to a year.

In the current year, the RBI has added over $8 billion to its kitty of $42.3 billion as on end-March 2001. It has added more than $2 billion since January this year. The import cover of reserves has improved from around eight months in end March to about 12 months now.

Dealers attribute a large part of the rise in reserves to excellent NRI, FDI and FII inflows over the past couple of months. They say that nationalised banks have been seen mopping up dollars even on days when dollar supplies have been almost negligible.

The RBI Governor, Dr Bimal Jalan, had said a couple of weeks ago that the central bank is targeting a reserve level sufficient to cover all "Liquidity at risk associated with different types of flows and other requirements for about 12-18 months''. Dr Jalan had said that the aim was to build enough reserves to tide over any eventuality - such as an extended depression or forex crisis - for a prolonged period.

Ironically, on the eve of the reserves exceeding the psychological $50-billion level, the rupee itself closed at its all-time low. From its previous closing level, the currency slipped 10 paise on Friday ending at 48.7750 to the dollar.

The rupee, which opened the year 2002 at 48.27 to the dollar, is now 50 paise weaker, a depreciation of around one per cent in just under two months.

Analysts explain the paradox saying that fortified reserves are just a cushion and will not bear any direct impact on the markets. "While strengthening of forex reserves is extremely important for any developing economy, it just provides psychological comfort, until such time that those dollars are brought into the market,'' said an analyst.

There is also a belief in the market that the central bank is comfortable with the level of the rupee. The view is bolstered by aggressive purchase of dollars by the RBI through State-run banks even on days when the rupee was perceived to be weak.

Dr Jalan confirmed this a couple of weeks ago when he said "Even though we are not targeting any level for the rupee, we are buying dollars in a major way and would continue to do so''.

"There is an on-going debate about the overvaluation of the rupee as per the REER calculations. So the apex bank will keep the rupee weaker in order to maintain export competitiveness. The post-Budget scenario is likely to see the rupee at 49 levels. We are unlikely to see any strengthening in the near term,'' said a forex dealer.

Comfortable levels of foreign exchange reserves is also a pre-requisite for full float of the currency, which is a long-term target for the country. According to the Committee on Capital Account Convertibility, four comprehensive indicators have to be used to evaluate the adequacy of reserves.

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Forex reserves cross $50-b mark

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