The weak global economic prospects and continuing uncertainties in the international financial markets are driving up the cost of foreign funds for both banks and corporates in India even as the economy integrates into the seamless world, the Economic Survey 2011-12, presented by finance minister Pranab Mukherjee in the Lok Sabha showed.
The unfolding of the euro zone crisis and uncertainty surrounding the global economy have slowed India's export growth resulting in higher current account deficit and declining capital inflows. Export growth has slowed in the third quarter of fiscal 2011-12, while imports remained high, partly because of continued high international oil prices, the survey pointed out.
At the same time, foreign institutional investment flows have declined, straining the capital account and the rupee exchange rate, it added.
The high cost of borrowing overseas can in part be attributed to a 12.4 per cent decline in the value of the rupee against the dollar in the current fiscal (2011-12).
From 44.97 per dollar in March 2011 the rupee value has fallen to 51.34 per dollar in January 2012. The Indian unit reached a peak of 43.94 a dollar on 27 July 2011 and hit a low of 54.23 per dollar on 15 December 2011, indicating a depreciation of 19 per cent.
During fiscal 2011-12, forex reserves reached all time high level of $322.2 billion at end-August 2011. However, it declined to $292.8 billion at end-January 2012. The decline in reserves has been partly due to intervention by the Reserve Bank of India to stem the slide of rupee against the dollar.