A study by the Reserve Bank of India's department of economic analysis and policy on foreign exchange reserves has identified higher earnings from merchandise exports, software exports and strong private remittances as the major reasons for the surge in reserves.

It refutes the argument that the Non-Resident Indian money is pouring in to take advantage of the arbitrage opportunity between high Indian interest rates and low US rates.

The financial costs of the additional reserve accretion in India in the recent period is quite low, and is likely to be more than offset by the return to additional reserves, it said.

During the current fiscal year up to January 17, India's foreign exchange reserves increased by $18.3 billion, from $ 54.1 to $72.4 billion.

In contrast, the foreign exchange reserves rose by $11.8 billion during the full fiscal year 2002 and by $ 6.9 billion during the corresponding period of last year.

The DEAP analysis shows that the current account balance which turned around from a deficit of $1.3 billion to a surplus of $2.5 billion contributed about 20 per cent to the reserves.

This was on account of higher earnings from merchandise exports, software exports and strong private remittances.

Under the capital account, 22 per cent of the contribution came from leads and lags in export receipts ($ 2.8 billion).

Foreign investment accounted for 15.1 per cent ($1.9 billion), NRI deposits for 16.7 per cent ($2.1 billion) and banking capital, excluding NRI deposits, for 15.1 per cent ($1.9 billion).

The current account transactions -- merchandise and software exports and private remittances are not only non-reversible but also non-debt in character.

Since the debt creating inflows are significantly low, it may be concluded that the cost of accretion to reserves is not very significant, the study said.

The study has found that the increase in 'other capital' has been on account of the leads in export receipts owing to the appreciation of the rupee.

Export receipts (which may have been withheld earlier owing to expectations that the rupee would further depreciate) are also being realised faster as the rupee has appreciated.