Indian economy is among the fastest growing economies of the world.
The appreciation of rupee against dollar has been a huge addition to
its economic prosperity and growth story. The rupee appreciated by 9.8%
against the US dollar during the previous financial year between April
3, 2007 to January 16 2008. The major reason for this has been a flood
of foreign-exchange inflows, especially US dollars. The surge of capital
inflows into India ranges from foreign direct investment (FDI) to
remittances by Indian expatriates.
India's starring economic growth has created a large domestic market
that offers promising opportunities for foreign companies therefore
increasing the FDI inflow. Moreover many companies rising competitiveness
in many sectors has made it an attractive export base. India's booming
stock market embodies the confidence of the investors in the country's
corporate sector. Foreign portfolio inflows have played a key role in
fuming this boom. Looking at the period of 2003-04 and 2006-07, the
net annual inflow of funds by foreign institutional investors averaged
US $ 8.1bn. Trends during first five months of 2007 indicate that this
flood is continuing with net FII inflows amounting to US $4.6 bn. FII
equity flow has increased from $9.8 billion in 2004, $ 11 billion in
2005 to over 16 billion in 2007.
Non-resident Indians (NRI's)
investing large amounts in special bank accounts. While NRI's emotional
connection to the country of origin is part of explanation to this,
the attractive interest rate offered on such deposits also provide a
powerful incentive. In 2006-07 NRI deposits amounted to US$ 3.8 bn.
another large source of foreign exchange inflows has been remittances
from huge number of Indians working overseas temporarily. Such remittances
amounted to a colossal of US $ 19.6 bn in April-December 2006, a 15%
year on year increase thus contributing to economic growth.