India to use $15 Billion in infrastructure development – first nation ever to tap into Foreign Exchange Reserves!
Kanta Lodha, Special Correspondent
October 29, 2004

Why is India so eager to spend $15 Billion from Foreign Exchange Reserve to improve infrastructure? The reason is simple, India earned this foreign exchange reserves through Western Companies transferring money to India for opening new shops in Bangalore, Mumbai and Delhi. India believes by investing some part of the same in infrastructure development, India will receive more foreign direct investment and after a while India will become a developed nation. 

It is a very shrewd move. The Planning Commission will use about $15 billion from the foreign exchange (forex) reserves for the country's infrastructure development, the panel's head said here Thursday. The panel had held discussions with the finance minister and Reserve Bank of India (RBI) on making best use of the huge forex reserves, Planning Commission Deputy Chairman Montek Singh Ahluwalia told reporters. "Though the proposal appears unusual, it is very innovative in the light of serious infrastructure deficit faced by the country. The present circumstances are not normal. We have to do something unusual and innovative," Ahluwalia said on the sidelines of the 31st foundation day of the Indian Institute of Management here. Terming the current forex amount as very huge, Ahluwalia said out of the reserves of $120 billion, if $30 billion of non-resident deposits were set aside on the grounds that they were liquid liabilities and another $5 billion towards short-term deposits, the country would still have $85 billion reserves. "Even after fully covering all liquid liabilities, we will be still left with $85 billion forex funds, which is a very large sum of money. According to the former RBI governor (Bimal Jalan), about $60 billion forex reserves are adequate to meet our import bills.

"Hence our proposal is to use the balance $15 billion over the next three years to fill the infrastructure gaps, which are quite essential," Ahluwalia said. Hoping the panel's proposal would be accepted by the government, he said even if the country were to have $15 billion less in forex reserves, it would be worthwhile as it would create infrastructure equivalent to that value. "Our judgement is the return the economy gets from $15 billion in infrastructure would be much more than the returns we are getting in terms of interest earnings, which are a mere two-three percent."