You are here: Rediff Home » India » Business » Columnists » Guest Column » Vinayak Chatterjee
Search: The Web
  Discuss this Article   |      Email this Article   |      Print this Article

Why India must use forex to fund infrastructure
Vinayak Chatterjee
Get Business updates:What's this?
April 16, 2007

If inflation is the 'holy cow' of economic growth, then foreign exchange reserves are surely the 'holy goat'.  And using forex reserves for infrastructure seems to have got many an economist's goat.

Ever since Montek Singh Ahluwalia broached this "out-of-the-box" idea in 2004, think-tankers have produced an array of facial expressions ranging from raised eye-brows, sardonic grins and puckered lips.  Since Budget Day 2007, when the finance minister announced some specific schemes to move ahead on using forex-for-infra (backed by recommendations from the Deepak Parekh Committee Report), the quizzical looks have been gradually replaced with bemused wonderment that this idea may actually have a fighting chance of getting implemented soon.

What is the idea?

The finance ministry is apparently considering setting up two wholly-owned foreign subsidiaries of the Indian Infrastructure Finance Company Limited (IIFCL), itself wholly owned by the Government of India. One of the subsidiaries will guarantee the fund-raising activities of SPVs (of public sector firms or PPPs) seeking to raise money abroad. The other subsidiary will lend the forex it will borrow from RBI to infrastructure initiatives that are seeking to import capital goods or meet their need for external borrowings.

Why do most economists hate the idea? 

Here's a shot at listing eleven reasons why "those forex reserves should be left alone":

But surely all these reasons have been considered, debated and chewed upon by our wise men who are line managers of our economy?  Messrs Prime Minister, Finance Minister, Deputy Chairman Planning Commission and Deepak Parekh appear to have agreed that on balance of consideration, the idea may well worth be pursuing.

Let us now look at the reasons that support the idea.

Looking at both sides of the argument, there appears to be a case for giving the forex-for-infra goat the chance to morph into a dollar-denominated biryani. If it fails to impact, then at least it would have been a worthwhile sacrificial offering at the altar of a fresh and bold idea.

Let's go for it!

The writer is the Chairman of Feedback Ventures. He is also the Chairman of CII's National Council on Infrastructure. The views expressed are personal.

Powered by

More Guest Columns
 Email this Article      Print this Article

© 2007 India Limited. All Rights Reserved. Disclaimer | Feedback