The Hindu Business Line : No open market operations for G-Secs now: Jalan

THE Reserve Bank of India has no immediate plans to come out with an open market operation in the Government securities market, according to its Governor, Dr Bimal Jalan.

Dr Jalan stated this on the sidelines of an IMC Diamond Jubilee Endowment Trust conference to felicitate Mr K.V. Kamath, Managing Director and CEO, ICICI Bank, with the "Eminent Businessman of the Year" award. He said that the recent decision of the apex bank to cap interest rates on NRE deposits for overseas Indians was to prevent any arbitrage opportunities on account of the wide interest rate differentials between NRE and dollar deposits. "It was done to bring parity and to address any possible rate arbitrage," he added.

Fielding questions on the increasing maintenance costs of high foreign exchange reserves, Dr Jalan said, "The foreign exchange reserves are non-debt creating flows". He said that whenever the RBI mops up dollars from the market, it releases equivalent amount of rupees into the banking system.

The RBI Governor said that while today the concerns are that the reserves are strong, a decade back the concern was not having adequate reserves. "When we talk about the use of these reserves, we should create an environment for investment," he said.

Dr Jalan said there has been an ongoing debate on the issue of capital account convertibility internationally. However, after the economic crisis in South-East Asia and some Latin American countries, many are now following the Indian exchange rate management model. "Another issue that needs to be addressed is whether we should have much greater volatility in exchange rates than we do now," he said.

On the future and trends of the Indian economy, Mr K.V. Kamath said that the manufacturing sector is growing and it is happening despite external competition in both domestic and international markets.

"Companies are establishing manufacturing bases overseas, building distribution networks, registering intellectual property patents etc. A parallel trend is the growing number of international companies choosing India as a global manufacturing and sourcing hub," he said. The advantages of India as a manufacturing base are the same that are being leveraged by Indian companies to compete globally, he added.

On the infrastructure side, key sectors such as telecom and roads have benefited from policy initiatives and private participation, Mr Kamath said.

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