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Govt eyes forex reserves to boost investment

June 16, 2004 07:19 IST
Last Updated: June 16, 2004 07:22 IST


The Union Budget is likely to adopt a three-pronged strategy to bring about the second green revolution in agriculture and evolve methods to tap the $119 billion foreign exchange reserves to boost investment.

Finance Minister P Chidambaram, who has been a strong advocate of utilising the mounting forex reserves for productive investments, is likely to unveil the roadmap for this purpose in the budget for 2004-05, official sources said.

Chidambaram has often said every country should have a safe and comfortable limit for holding forex reserves to meet the balance of payment requirements, and beyond which the reserves should be utilised for investments in needy sectors of the country particularly in infrastructure.

With the government committed to stepping up public investment in infrastructure, agriculture and export sectors, while taking stringent and tough measures to bring down fiscal and revenue deficits, the mounting forex exchange reserves could be one major source that could be tapped by the government.

The country's forex reserves accounted for one-sixth of India's GDP put at around $625 billion (or Rs 27,000 billion) for 2003-04.

But it is not yet clear what sort of schemes Chidambaram will come up with to tap the forex reserves, which are mainly invested in low-yielding US treasury bills.

Any investment including infrastructure, where returns are low and take a long gestation period to be completed, would still have a better return than treasury bills.

The three-pronged strategy in agriculture would step up agri loans with easy repayment facility and low interest rates, bring in high technology, promote irrigation including completion of all pending projects in a time bound manner.

Even as government plans to step up public investment, the government is likely to bring about fiscal consolidation as promised in the CMP.

The CMP had laid down the roadmap for wiping off revenue deficit by 2009, which meant that the deficit would have to be brought down by at least 0.7 per cent of GDP annually.

The NDA government in its interim budget projected a fiscal deficit of 4.4 per cent of GDP. If UPA wants to cut deficits by 0.7 per cent of GDP, the fiscal deficit target has to be lower than 4.4 per cent.

This means that government would have to come out with far reaching measures to contain expenditures.


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