Taking a leaf out of Chinas economic growth history,World Bank chief economist Justin Yifu Lin today said India should use its forex reserves like the Chinese government did in the 1990s to tide over the economic downturn.
In the present scenario when we are witnessing deflationary trends in the domestic economy,using forex reserves to trigger demand and growth will be a good step. We can also overrule the possibility of rise in inflation due to this money supply in this environment. In short-term,the country will see some depletion in reserves,but in the long-term,as the economies around the world revive,India will be poised to export more and generate more forex revenues, Lin said at a press conference here on Friday.
The downturn is the cause of excess capacity in the system,developing countries were innocent but will be hurt seriously and poverty,unemployment will be big issues, he said. Big investments in infrastructure in developing countries by industrial countries could pave the way for eventual recovery and a resumption in demand, he said.
The government should invest in projects to that will increase revenue and pay back in future. Investments in energy,infrastructure and power projects can not only cut excess capacity but will also increase demand leading to a revival, he said.
Making fiscal stimulus plans work by releasing bottlenecks to growth in developing countries offers a potential win-win solution, Lin said. Such investments,he said,will not only increase demand,but also their growth,and the government revenues,which in turn will enhance overall demand.