New Delhi, December 20
India today crossed the rubicon when its foreign exchange reserves exceeded the $100 billion mark, reflecting the country’s robust economic health.
The development announced by Finance Minister Jaswant Singh this afternoon puts India in a big league and increases the strategic clout of the country in the comity of nations.
The development also reflects the great economic miracle India has performed in under 13 years. During the prime ministership of Chandra Shekhar in early 1991 India’s foreign exchange reserves had touched rock bottom (just about $6 billion) and the country had to pledge part of its gold reserves with the Bank of England to ward off a debt repayment default.
The more foreign exchange a country has the more comfortable that country is in making strategic purchases like oil, weaponry and sensitive technology.
After crossing the $100 billion mark in forex reserves, India has taken a quantum leap and has been catapulted to rank four after Japan, China and Korea.
Economic and strategic experts here see this development as a major achievement of the Vajpayee government which the ruling BJP will inevitably encash politically as and when the next general elections are held.
The forex reserves, comprising foreign currency assets, gold and special drawing rights reached a level of $100.048 billion yesterday, much ahead of the projections made by many global and domestic think tanks.
“Our reserves will add greater momentum to bolder economic reforms, enabling the country to achieve significantly higher growth. This will also provide a cushion facilitaing higher level of investment activity,” Finance Minister Jaswant Singh said.
However, Finance Ministry officials indicated that full capital account convertibility was still some distance away even though $100 billion represented a “historic high”.
India today ranked fourth in Asia, behind Japan, China and Korea in terms of forex reserves. Significantly, most of the reserves will in the nature of non-debt creating, which experts here averred as being of critically distinct from several other economies.
“These (forex reserves) are non-debt creating capital inflows besides the short term flows were negligible compared to the size of forex reserves,” Mr Singh said.
As Jaswant Singh pointed out forex reserves had increased by about 94 billion since 1991, while the external debt had gone up by only $20 billion.
The accumulation in forex reserves had come about in the backdrop of pre-payment of $ 5 billion of external debt during this year, outflow of $5.5 billion in the way of redemption of Resurgent India Bonds (RIBs) and another $498 million to the International Monetary Fund (IMF).
He sought to allay any fears about the use of the forex reserves as these would be used by the RBI to address any volatitlity, act as catalysts for unveiling policies for furthering the pace of growth and to provide cushion in the eventuality of any unanticipated supply shock phenomenon.
“These policies, I am assured by the RBI, will continue to be followed keeping in view the overriding macro objective of growth, price stability and financial stability,” he said.
“This level of forex reserves reinforces my conviction that our aim of self-reliance for which we have worked for several decades since independence, has now comfortably been reached this point of great confidence.....the nation is on a much higher growth path,” he added.
The Finance Ministry said discussions were underway with some countries of Asia for the institutionalisation of an Asia Bond Fund, which had been conceptually confabulated upon at various academic and governmental fora.
