Mumbai, Oct. 1: India’s foreign exchange reserves could shrink $39 billion in 2008-09 as a result of the global financial turmoil, Goldman Sachs predicted today.

The country’s foreign exchange reserves, which were around $310 billion in March, had been declining steadily and could go down to $271 billion by the close of the current financial year, the report said.

The fall in foreign exchange reserves has been blamed on the rising current account deficit.

The current account deficit increased in the April-June quarter to 3.6 per cent of GDP from 2.4 per cent in the same quarter last year, because of a record merchandise trade deficit in the quarter. This was fuelled by oil prices which ran up from $100 per barrel to $140 per barrel in the quarter.

Invisible receipts rose over 29 per cent year-on-year as remittances from Indians working overseas increased to $12 billion from $7.8 billion in the same quarter in 2007-08. Software exports also grew 20.6 per cent in the same period.

However, Goldman Sachs said capital inflows fell to $13.2 billion in the first quarter from $17.3 billion in the same period of 2007-08 and $25.4 billion in the preceding quarter.

The report said the current account deficit would remain high during the year and it would be a bigger concern with oil at $150 a barrel than at current prices.