Foreign Exchange Use Pattern of Manufacturing Foreign Affiliates in the Post-Reform India: Issues and Concerns

The paper examines the trends and pattern of foreign exchange use of a consistent sample of foreign affiliated manufacturing firms in India over the post reform years marked by a change in policy regime for trade and foreign exchange use. A rising tendency of foreign firms for net foreign currency losses both in the terms of aggregate values as well as firm-level intensity is found over the period, the magnitude of losses being more significant for various expense routes and overall net losses in the last decade. A shift in preference for outflows through finished goods imports and intangible transaction payments is noted. The firm level expense intensity has risen for different routes as well, while the export intensity did not vary significantly over the period. The propensity towards foreign exchange use was dissimilar in various ways for comparable local firms. Such patterns raise serious concerns regarding the impact of FDI on current account of India’s Balance of Payments of India in direct and possibly shielded ways and the role of policy regime in influencing such outcomes.