Govt, RBI differ on forex reserves funding

The Reserve Bank of India and the government do not seem to see eye-to-eye on the issue of utilising the country’s burgeoning foreign e...

The Reserve Bank of India and the government do not seem to see eye-to-eye on the issue of utilising the country’s burgeoning foreign exchange reserves for infrastructure sector funding.

According to deputy chairman of the Planning Commission, Montek Singh Ahluwalia, the commission is considering using the country’s forex reserves for financing infrastructure development. This is an idea that is also close to Finance Minister P. Chidambaram’s heart.

India’s forex reserves — at $119 billion — were more than adequate and the commission is working on how it could be used, said Ahluwalia in Mumbai last Thursday. One of the options being considered by the Planning Commission is to create a special purpose vehicle and transfer about $5 billion reserves to be used for core sector funding during the year.

Story continues below this ad

However, in its monetary policy announcement in May this year, the bank had made no bones about its unhappiness with the idea. If reserves were used to fund infrastructure then the amount available as reserves would be reduced, compromising considerations of safety and liquidity.

A similar proposal was mooted by Omkar Goswami, former chief economist in CII, after Jaswant Singh presented his interim Budget for this fiscal. While the finance ministry had discussed the proposal then too, the central bank had objected to such a move.

On voting rights the government is keen to lift the 10 per cent cap, but RBI is not.

On ownership in private sector banks, where RBI is keen to enforce a 5 per cent cap for individual holdings, the finance ministry is inclined to take a more lenient view.

India win hands down, skip the handshake with Pakistan

Sports3 hr ago

Indian captain Suryakumar Yadav led his team to a dominant seven-wicket victory against Pakistan in the Asia Cup match, dedicating the win to the Armed Forces and mentioning the Pahalgam terror attack. Yadav's refusal to shake hands with the Pakistani players added to the intensity of the game. Despite the lack of drama, the match was action-packed.

View all shorts

Live Blog