Dollar shortage to continue in India & rupee fell to close at 40.52/53
Rupee hits lowest level since October 2001

New Delhi, March 08, 2008
Ashok Malhotra

Indian Foreign exchange dealers estimate that Indian banks are facing a shortfall of about $200 million every day for the past month. Now it is acute shortage of dollars in the market. The banks have no dollars to lend to corporations. There are some reasons for shortage of dollars in India:

• The Reserve Bank of India (RBI) and the finance ministry’s policy of curbing dollar inflows for the systemic shortages. The situation will correct only when inflows recover sufficiently or the RBI supplies dollars.
• The situation will worsen in March when the rupee liquidity will tighten on account of advance tax outflows.
• NRI deposits have come down when banks announced low interest for NRI deposits
• Another reason is that foreign institutional investors (FIIs) are turning net sellers in the Indian equities. For the past 2-3 months, FIIs have net sold $3.3 billion worth of equities. In 2007, they had bought a record $17.5 billion worth of Indian equities net of sales.
• Sharp rise in oil prices increased the demand for dollars and it is expected the dollar may gain more ground

On Friday, the rupee fell to its lowest in nearly six months close at 40.52/53 to a dollar. NRIs and foreigners may sell shares and repatriate funds.

India imposed in August 2007 curbs on companies seeking to borrow from overseas to slow capital inflows that pushed the rupee to a nine-year high.

One dealer said, India's benchmark share index dropped 3.4 per cent on Friday, to post its lowest close in nearly six months, in line with a bearish trend in stock markets across Asia. The higher trend in the dollar may help Indian exporters in making room for their products in the international market due to the cheaper rupee as compared to the other competitors.