The Hindu Business Line : Setting up sovereign wealth fund

This is with reference to the Reserve Bank of India’s reluctance to set up a sovereign wealth fund utilising the foreign exchange reserves which stands at more than $311 billion as on date (Business line, April 16). This has to be viewed in the context of our external debt of more than $201 billion as on end December 2007, the restrictions imposed by the RBI charter on investing in non-financial assets, the current and fiscal deficits of the Centre and the need for utilising the reserves to meet the import needs of the food articles and other sensitive products.

However, a part of the foreign exchange reserves can be lent to an agency suh as the LIC that has vast experience in managing insurance. Such a move will reduce the impact of the ever-increasing forex reserves and curtail the expansion of domestic money supply. It will also act as a deterrent against rupee depreciation.

P. E. Muthu Mumbai

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