India’s International Financial Assets Drop by $56.5 bn in Q2

India’s international financial assets declined by $56.5 billion during July-September 2022 with valuation losses accounting for a major part. Reserve assets remained the dominant component (62.9% share) of India’s international financial assets. The net claims of non-residents on India increased by $34.3 billion during Q2 of FY23 and stood at $389.6 billion in September.

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What Are Causes Pointed Out By RBI:

• The fall in India’s foreign liabilities during Q2 was attributed primarily to direct investment (net) outflows.
• Portfolio and other investments also recorded marginal decline on a net basis, barring trade credit which increased by $5.1 billion.
• Variation in the exchange rate of rupee vis-a-vis other currencies also impacted the change in liabilities, when valued in U.S. dollar terms.

The Current Scenario:

Debt and non-debt liabilities continued to have equal share in total external liabilities. The ratio of international assets to international liabilities moderated to 68.5% in September from 71.5% a quarter ago.

Significance of External Financial Assets:

The External Foreign Assets determine the value of a nation’s currency greatly. When the currency appreciates, the value of foreign assets decreases. When the currency depreciates, the value of foreign assets increases. Therefore, if a country is net debtor, currency depreciation will raise its burden of foreign currency debt.