The Hindu Business Line : Putting forex reserves to good use

Advertisement

Chennai Feb. 28 Getting adequate returns on India's growing mountain of forex reserves ($188 billion) offers a challenge for the Reserve Bank of India. The returns have been in the range of 2 to 3 per cent during the past few years.

As custodian of forex reserves, the RBI has invested them predominantly in deposits with other central banks (nearly 50 per cent), deposits with commercial banks (about 25 per cents) and another 25 per cent in securities (possibly US treasuries).

There has been a growing debate, not only in India, but in other Asian central banks as well, on the need to put their growing stockpile of US dollars (and some bit of other currencies), to some good use. The focus is shifting from safety and building a reserve for a doomsday scenario (like the Asian currency contagion crisis a decade ago), to earning something out of it.

Going by one of the measures of reserve adequacy, India is sitting comfortable since it has enough cover to pay one year's import bill. Most recently, Mr Joseph Stiglitz, economics Nobel laureate, suggested that India uses some of its reserves for infrastructure development.

China, which has a bigger problem of plenty with $1007-billion forex reserves, is setting up an overseas investment agency to diversify investments. Reportedly, the agency may get a mandate to invest about $200 billion.

The Deepak Parekh committee seems to have thought of something similar - although the investment vehicle appears to be in the form of wholly owned subsidiaries of India Infrastructure Finance Ltd. It would seem to be a win-win situation for both the RBI and companies engaged in infrastructure projects.

The RBI gets to improve its return on funds (without having to invest in stocks or real estate) while the cost for companies would come down simultaneously.

The modalities of these Budget proposals remain to be worked out.

More Stories on : Forex | RBI & Other Central Banks

Article E-Mail :: Comment :: Syndication :: Printer Friendly Page

Stories in this Section
Reverse mortgage of property to help senior citizens

Debt management office to be set up

Rule soon for housing mortgage guarantee cos

Chidambaram dwells on making Mumbai a global financial hub

Home loan of Rs 20,000 for the poor at 4%

Housing finance cos may gain from reverse mortgage

Health insurance sector receives a boost

Putting forex reserves to good use

Rupee weakens

Bond prices tumble

Banks, FIs agree to settlement with Trayons

`Net govt borrowing to be higher'

Call rates steady

Airlines' efforts to check online frauds