The government is considering a proposal to use a part of the foreign exchange reserves of $117.58 billion to fund infrastructure projects. Prime Minister Manmohan Singh has asked the finance ministry and the Planning Commission to consider the proposal and provide inputs.
Given that central and state governments will be unable to raise their level of borrowings, public sector units could be drawn into the net and asked to borrow these funds from the Reserve Bank of India and invest them in infrastructure-related projects.
The country has a current account surplus of about 1 per cent of the gross domestic product, while a current account deficit of 3 per cent of the GDP is the feasible upper limit according to the Tenth Plan.
This means that there is scope to increase investment in the economy by up to 4 per cent of GDP.
"Something similar to the National Small Savings Fund, with the associated discipline could be worked out," said NJ Kurien, principal consultant, National Institute of Public Finance and Policy.
However, he warned that converting the foreign exchange to domestic currency will push up money supply and inflation, and have a negative impact on the economy.
The country had accumulated reserves of over $120 billion as on July 9, which fell to $117.58 million on September 3, mainly due to the RBI's intervention to strengthen the rupee, the rising trade deficit and the hike in international interest rates.
Utilisation of these reserves by the government, however, poses a problem. "The money does not belong to the government to use as it sees fit," said Subir Gokarn, chief economist at the credit rating company, Crisil.
It would have to issue domestic debt to get the money from the central bank, he added.
© 2024 Rediff.com -