| Date: |
27-08-2010 |
| Subject: |
Reserve Bank rejects move to use $2 bn forex for infra fund |
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The Reserve Bank of India (RBI) has rejected a Planning Commission proposal to use $2 billion out of India's foreign exchange reserves as one of the resources for the proposed $11 billion (Rs 50,000 crore) India Infrastructure Debt Fund (IIDF). The RBI believes using forex for expenditure in India is against the basic idea of building reserves.
"The way these reserves are managed is by absorbing the supply of the forex. Now, if the same reserves are again used for domestic expenditure, then the forex again comes back to the market. It really doesn't meet any purpose," RBI deputy governor Shyamala Gopinath told FE when asked whether the central bank will consider investing a portion of forex in IIDF.
India's forex reserves stood at $282.79 billion as on August 13, according to RBI data. A committee appointed by Planning Commission in May suggested creation of IIDF for financing infrastructure projects in India. The Plan panel has approved the committee's recommendations, which are now being examined by the finance ministry. A panel headed by State Bank of India chairman OP Bhatt has been set up to flesh out ways to implement IIDF.
The country faces a 30 per cent gap in its infrastructure funding requirementset at Rs 41 lakh crore in the twelfth five year plan (2012-17). "We can meet a part of this need through domestic resources, but the rest is going to come from foreign investment. The government is considering various options, with the financeministry, RBI and other regulators involved in the matter," Planning Commission member BK Chaturvedi told FE.
Gopinath said the RBI had earlier agreed to invest a total of $5 billion of its forex in the UK subsidiary of India Infrastructure Finance Company (IIFCL). But this has been ring-fenced in such a manner that the forex does not flow back into India and is spent by companies for buying equipment abroad. "However, there are issues relating to infrastructure (financing) in India, particularly if infrastructure projects actually need domestic resources for their funding rather than forex," Gopinath said.
The RBI has so far invested $250 million in the IIFCL subsidiary. IIFCL CMD SK Goel said his company plans to utilise the remaining line of credit from the RBI within this fiscal. Senior policy advisers have repeatedly suggested using forex resources for infrastructure creation in India, especially since these reserves earn low returns abroad. Returns earned by RBI the custodian of India's forex reserves on its foreign currency assets and gold more than halved to Rs 25102 crore in 2009-10 from Rs 50,796 crore in 2008-09, due to near zero interest rates in foreign countries where these are invested. "Looking at investing in infrastructure as a means of increasing returns is not something with which (we agree). Normally we resist it," Gopinath said.
"Globally, infrastructure sector gets a lot of money from insurance and pension funds, which are long-term sources. The regulators should not be rigid in their approach and ease the norms if the necessity of the sector has to be met," said Soma Enterprises senior vice president D V Raju.
Source : news.in.msn.com
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