The government will weigh the feasibility of using foreign exchange reserves for infrastructure development.
For every dollar of reserves used, equivalent amount of rupees will be released into the system. The government will act in a fiscally responsible fashion in whatever it decides.
It was economic affairs secretary, Rakesh Mohan explaining the difficult economics of use of foreign exchange reserves during a "farewell" chat with reporters he had interacted with during his over two-year stint as deputy governor of Reserve Bank of India.
Mohan was back at RBI headquarters in south Mumbai a few days after taking over the reigns at the economic affairs department at North Block.
Attired in a black suit, while shirt and a red-and-blue tie, Mohan reminisced his days at the central bank and how his new appointment takes him away from his previous jobs, which had a "very high direct economics content."
His task as economics affairs secretary will involve "dealing with the economy but less of economic content." The new job will make him engage in day-to-day work away from economic research, and more into policy making, participating in policy making.
Year 2002-03 was really tough when the country was troubled by a severe drought and high oil prices. Mohan took pride in saying that the key development of the troubled period was the ability of RBI and the government to do efficient macro-management to withstand shocks.
Severe drought, high oil prices, border tension, world slowdown -- it was all happening and still interest rates in India were going down. Redemption of $5.5 billion of Resurgent India Bonds without a whimper, easy absorption of $37 billion of foreign exchange reserves and effective management of high liquidity. He sees all of these as big achievements.
Mohan felt his days at RBI were a "great learning process" and went on to talk of how the historic stock market crash of May 17 was soon forgotten and how RBI had then uncharacteristically offered to provide foreign exchange to foreign institutional investors to meet their liquidity needs.
He tactfully skipped questions on issues a response to which would have sounded as a comment on RBI or government policies on FDI or on GDP forecast.
He defended the hike in fuel prices saying the government had no choice as it has certain revenue needs and can't continue to reduce taxes and levies. The price hike was a signal to consumers that this commodity is expensive internationally and that there is a need to make its use very efficiently.
Mohan regrets that he could not devote more time to research programmes, the core of central bank functioning. He was very elated at India having become resilient, which has given it the strength to emerge from shocks unharmed.
Mohan found his stay in Mumbai "surprisingly happy", but was sad that three of the four pillars of the island city (textile industry, ports, chemical industry and the financial sector) have collapsed. The city needs to find alternatives of employing the skill sets of its population and reinvent itself as Boston has done after the lows of the 60s and 70s.
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