Date:08/03/2005 URL: http://www.thehindubusinessline.com/2005/03/08/stories/2005030801020400.htm

Back `Forex reserves need not be used for infrastructure projects'

Our Bureau

`At present there is ample liquidity in the system.'

Mr Rakesh Mohan, Secretary-Department of Economic Affairs, flanked by Mr Y. M. Deosthalee (right), CFO, Larsen & Toubro Ltd, and Mr Gaurav Nanavaty of CII (Western Region), at the CFO Summit 2005 organised by CII in Mumbai on Monday. — Paul Noronha

Mumbai , March 7

THE country's forex reserves need not be used for funding infrastructure projects. There is ample liquidity in the system, said Mr Rakesh Mohan, Secretary, Department of Economic Affairs.

Speaking at a CFOs' summit organised by the Confederation of Indian Industry, Mr Mohan said that at present there is ample liquidity in the system with around Rs 1,00,000 crore available through the reverse repo auction and the Market Stabilisation Scheme.

He clarified that the special purpose vehicle, proposed in the Budget, will raise money for any capital goods imports needed for infrastructure projects. However, this necessarily need not be through forex reserves.

In order to keep the economy growing, the Government should keep inflation rate below 5 per cent. Since the Budget has allowed for greater flexibility in the monetary policy, the RBI can now remove the 25 per cent SLR and reduce the CRR to 3 per cent and thereby give greater flexibility to banks.

Explaining how the Government borrowings will be lower than estimated, Mr Mohan said that as per the 12th Finance Commission's recommendations, even States would have to comply with the Fiscal Responsibility and Budget Management guidelines.

The Commission, while giving larger grants to States has also given them a longer period to repay the loans. In addition, States will now get 100 per cent of the small savings, as against 40 per cent, which was the case earlier. This will increase their loan kitty, so they will borrow less. This, in effect, will bring down Government borrowings, as for planned expenditure the Centre usually borrows money and gives it to States.