Dollar outflow won’t hit India

Hyderabad/New Delhi: Despite the rupee touching its 2015, global rating agencies are confident that India can withstand a continued dollar outflow, following the sale of shares and bonds by foreign investors.“India’s external balances are strong when compared to peers on some accounts, and can withstand the current outflows, for instance, due to the high level of foreign-exchange reserves,” said Thomas Rookmaaker, director at Fitch’s Asia-Pacific Sovereign Group.

As on May 1, India’s foreign exchange reser-ves had hit an all-time high of $351.87 billion as RBI governor Raghuram Rajan steadily built up a fairly formidable warchest to weat-her the rupee volatility due to external turbulence. Fitch affirmed its “BBB-minus” and “stable” outlook on India in April.Meanwhile, a finance ministry official said on Friday that the steep fall in the rupee was a result of higher capital flow to China and Malaysia and the rupee will stabilise once the economic reforms are put in place. “However a lot will depend on the fresh round of reforms which the government is trying to push through legislative measures,” said the official.

Fearing a slow reform process and concerns over tax demand on foreign investors, overseas funds on Wednesd-ay offloaded a large chunk of Indian shares and bonds — the single-day biggest in a year and a half. On Thursday, the government set up a panel to suggest ways to resolve the MAT dispute.

Moody’s, which revised India’s “Baa3” sovereign rating outlook to “positive” from “stable” in April, said that its view reflects a two to five year horizon, rather than near-term growth, where the impact of outflows might be felt. “If reforms are implemented that would be quite positive,” Moody’s said.