ISSN (Print) - 0012-9976 | ISSN (Online) - 2349-8846

Articles By Charan singh

Should India Use Foreign Exchange Reserves to Finance Infrastructure?

India's foreign exchange reserves increased during the 1990s as a result of measures introduced to liberalise capital inflows under the financial sector reforms undertaken since 1991. The Reserve Bank of India, in consultation with the government, currently manages foreign exchange reserves. As the objectives of reserve management are liquidity and safety, attention is paid to the currency composition and duration of investment so that a significant proportion can be converted into cash at short notice. The government of India intended to use a part of its foreign exchange reserves to finance infrastructure. Infrastructure projects in India yield low or negative returns due to difficulties - political and economic - especially in adjusting the tariff structure, introducing labour reforms and upgrading technology. There is no evidence that any other country has used foreign exchange reserves to finance infrastructure. The amount of foreign exchange reserves in India is modest when compared to some of the other countries in the region and it can be argued that the proposed plan may lead to more economic difficulties than anticipated benefits.