The Hindu Business Line : Montek, don't ask for Reddy's money

MONTEK is back in news again, this time not for bringing in foreign experts to help in planning, but because he is asking for something that our Reserve Bank governor doesn't want to give: forex reserves. If you thought people aren't worried about who wins, as in the case of the other major tiff - legislature vs judiciary - you may be wrong. For, the latest tussle on the Mint Street has stirred up many questions from the man on the street. Such as:

What's the fight about?

Montek has been saying, "We have $140 billion-plus forex reserves. Why not use a portion for funding infrastructure projects?" But Reddy says, "No, you shouldn't."

We can get an international expert to convince Montek!

I think that idea has been tried out successfully, already. A few days ago IMF boss Rato was in town and he said, "Montek, don't ask for Reddy's money."

I thought reserves were as good as ready money.

Not exactly, because the RBI has to have that pile to do a few important things such as manage the value of the rupee, to ensure monetary stability. True, Reddy's job may not look as dramatic as a Bollywood dance number, but it is as important as blood circulation that we usually take for granted.

Montek isn't asking for the whole vault, is he?

You're right, he's asking for only $5 billion a year, and that is about Rs 25,000 crore. Though it is only around 3 per cent of the total forex reserves, Guv is worried that the money can go into the system if we used it for building dams and bridges, roads and ports, and cause inflation all round.

Did S&P push a spoke in Montek's wheel?

Almost, because the rating experts in Standard & Poor's found that suddenly almost everybody wanted to use the reserves. In Thailand, they were talking of building subways using central bank reserves, and in China they were toying with the idea of buying crude oil with the money. Then came the threat in the form of a possible downgrade because S&P saw no difference between using reserves and playing deficit spending.

You mean it is better to keep it idle!

You can say that of the 350 or so tonnes of gold that the RBI has; the mound has been playing a passive role though its value keeps changing. However, the heap of currency assets such as dollar and euro, pound and yen, has been changing and growing.

They say Montek hitchhiked onto a different vehicle when Reddy denied him a lift?

I think you're talking about the SPV or special purpose vehicle. Chidambaram spoke about this in his Budget speech as a measure to finance infrastructure projects in specified sectors. SPV will lend long term to the eligible projects to supplement other loans from banks and financial institutions, and the limit for this year is Rs 10,000 crore. Rato liked the vehicle idea!

One small doubt... who owns all that $140 billion?

Undoubtedly, it belongs to the RBI. And the bank is owned by the Government of India, which, as you know, belongs to `we the people'! But don't ask that the money be distributed, in which case each should get about Rs 7,000. The economy is still a going concern, and so, as Rato said, "Don't ask for Reddy's money!"

SayCheek@TheHindu.co.in

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