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India has to brace for external shocks: survey

India's economy, which has been relatively insulated from the global slowdown, has to prepare for external shocks as economic reforms will increase trade and financial linkages with the rest of the world, a government survey said on Tuesday.

But these shocks can be contained by improving government policies on exports, oil, tourism, software, foreign investments and domestic policies, the government said in the Economic Survey, an annual report card on the economy.

Foreign exchange reserves, which rose to a record $50.208 billion earlier this month, provided great strength to the external sector, the survey said.

"It is necessary to ensure that the quantum of reserves in the long run is in line with the growth of the economy and the size of risk adjusted capital flows," it said.

The recent rise in foreign exchange reserves were mainly on account of higher foreign investment inflows and expatriate remittances.

In April-November 2001, foreign direct and portfolio investment inflows, rose 47 per cent to $3.68 billion from a year ago and outstanding balances under various non-resident deposits rose to $24.65 billion on November 30 from $23.07 billion on March 31.

The Survey said the country's external debt rose marginally in the six months to September 2001 but that was accompanied by an improvement in the country's debt to GDP ratio.

While external debt rose to $100.38 billion on September 30 from $99.61 billion on March 31, the debt-GDP ratio declined to 21 per cent from 22.3 per cent in that same period.

However, export performance has flagged in the first nine months of the current financial year, with year-on-year growth dipping to 0.6 per cent from 20.8 per cent last year.

This might result in the widening of the current account deficit in 2001/02 (April-March) to one per cent from 0.5 per cent a year ago, the survey said.

The survey said the government would allow market forces to determine exchange rate movements in an orderly way. It reiterated the government's policy of smoothing excessive volatility in the exchange rate without targeting any specific level.

The survey also said the country should follow a phased approach towards capital account liberalisation.

The rupee, which is only partially convertible, fell to a record low of 48.885 rupees to a dollar on Monday. Analysts say its fall was engineered by the central bank to keep the currency fairly-valued in trade-weighted terms.


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