The Hindu Business Line : Energising reserves

Awakening from a deep slumber, policymakers have begun to recognise the immense possibilities that burgeoning foreign exchange reserves offer a country facing a host of scarcities. By the latest reckoning, India’s reserves stood at $290 billion with foreign currency assets at $281 billion. The Reserve Bank of India has been managing the flow rather efficiently so far, but expensively too, and the forthcoming Budget should give us a fair idea of what it costs the exch equer (meaning, the taxpayer) to simply maintain domestic liquidity at desirable levels. Both North Block and Mint Street view the currency inflows with double-edged dread — of it drying up, on the one hand, or overwhelming the economy, on the other. But once the growing pile crossed the level judged adequate for protection from external shocks, policymakers should have viewed inflows as opportunities rather than a problem. Now some officials should take a bow for thinking up a great idea to use part of those reserves fruitfully.

Creating a multi-billion dollar corpus to invest in energy assets abroad is probably the optimal way of using those reserves. The infrastructure fund of $5 billion recommended by the Parekh Committee had a mixed reception among policymakers. The present concept of sovereign wealth funds will also evoke different responses. That would be a pity because the need for filling the energy shortage is acute, given escalating demand. By 2010, India will be the fourth largest consumer of energy, replacing South Korea, and in 2025 it will have ousted Japan from third place, after the US and China.

With GDP rising at 8 per cent a year and energy consumption growing at 5 per cent, India has to step up both its domestic production and look for assets elsewhere. So far, ONGC Videsh has been active in the hydrocarbon sector, tying up with Mittal Steel and Chinese firms for joint deals in central Asia, Africa and Latin America. Other firms are scouting for mines with a mix of thermal and metallurgical coal in Indonesia and Australia. But the efforts require co-ordination so that such entities do not trip over one another. Last November, a special purpose vehicle was formed for the purpose with the NTPC and SAIL taking 28 per cent stake each, along with NTPC, NMDC, etc. A wealth fund — created with forex reserves — would add muscle to India’s race for energy supplies around the world and also ease pressure on the RBI. What is New Delhi waiting for?

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