Seeking to end deadlock on how to transfer foreign exchange reserves to the proposed special purpose vehicle, that would finance infrastructure projects, the Reserve Bank of India and the finance ministry are expected to meet shortly for discussions. This proposed SPV would be located either in London or Singapore. Contrary to finance ministry's stand on transferring forex reserves as investments, the RBI argues that under the existing law the funds can only be transferred in the form of ‘refinancing’. According to finance ministry, the refinancing option would increase the cost of transactions and therefore, wants funds to be transferred as investments. The law ministry has already backed the finance ministry’s stand stating that the RBI Act allows funds to be transferred to an SPV located in another country as investments. This opinion was obtained more than two months back but it is learnt that RBI’s interpretation of the concerned clauses in the RBI Act does not allow them to subscribe to bonds and only allows them to refinance loans. The proposal to use forex reserves for financing infrastructure projects was announced by finance minister in his budget speech this year. Starting with an initial corpus of $100 million, it was decided to set up a Temasek like SPV which would function like a wholesale banking company and would extend loans to Indian companies. The firms will be able to use the same for infrastructure development either for financing equity investments (that directly benefit India) or for even the purchase of equipment. Forex reserves to the tune of $5 billion would be transferred to this new company to finance projects that directly benefit India.
