New Delhi: The Indian economy seems to be passing through a difficult phase as the country’s foreign exchange reserves are not even enough to fund seven months' imports. It has slumped to the lowest level in the past 17 years.

India has very low level of foreign exchange reserves in comarison to other BRIC members; Brazil, Russia and China. India’s 291 billion dollar foreign exchange reserves are not enough to fund seven months' imports, while forex of Brazil and Russia are able to import for 17 months. China has 21 months’ import cover.

The India economy had faced the similar situation in 1991 when the foreign exchange reserves were not even enough to fund a month's imports. But the present situation coupled with India’s position in global economy has made the condition worse for the country’s economy.

The international bankers are assessing that the difference between inflow of foreign capital to India and its outgoing capital flow from the country can dip to 5 percent in compared to GDP in 2013, while it was 4.2 percent in 2012. The depreciating rupee is posing a serious threat to the Reserve Bank. It’s aggravating the problem of skyrocketing price rise in the country.

Indian rupee is likely to hit 56 levels against the dollar. The global investors also expected the rupee to dip as low as Rs 60 per US dollar. The Reserve Bank is also hesitating to make a significant cut in the interest rates.

The price of over dozen of commodities including petro product, cooking oil, metals, sugar, cotton is regulated by international prices. As per a report of Merrill Lynch, 10 percent depreciation in rupee increases inflation by one percent. The economists say that the Reserve Bank is not in a position to pump more dollars into the markets to check depreciation of money.

Anshuman Tiwari/JPN