Diversification is the name of the game. If the Dollar depreciates like it has been, then the huge reserves are of no use...India should also like the Chinese have hinted to do try to invest in other stabler currencies like the Euro in the short term.. As far as the fund goes there is no doubt that it needs to be created but provided we invest about 15% in it what to do with the rest of the 85%...Thats still invested in a ever weakening dollar...IMHO some currency should be diversified in Euro..Lowering interest rates is dangerous as it can increase your overall money supply in the country (which is how interest is lowered) and thus end up fueling inflation..And RBI has maintained a good check on it...wld be interesting to see wot RBI does...The Fed (US central bank) is slated to come up with a decision in Dec where its expected to lower rates anyways
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RBI reserves and its impact on the Indian Economy( pros and cons).
a) RBI reserves reached US $260 billion mark and still growing. But the US$ dollor is declining against all other major currencies like Euro(20%) and Sterling Pound (15%) etc. As of today's currency exchange rates RBI lost market value of its US$ dollor reserves due to currency fluctuations in the International market.(when looking into past 3 years)
b) China's central bank established a subsidary to invest in different businesses ( anywhere in the world), which will bring in dividends and value(capital appreciation) to its reserves. For example it invested billions of dollors into US based Private Equity firm ' Blackstone ' Group. But RBI never has such kind of plans and still piling up the reserves.
c) UK's central bank, Bank Of England deals with limited number of issues and the rest of things taken care by different entites like FSA (financial services authority) and MPC ( monetary policy committee) etc. But in India RBI deals with every single issue related to finance and ignoring to implement / amend the major Policies and Regulations.
Is RBI need to change its attitutude / entities to tackle the problems in the Economy?
RE:forex issues.
by lax on Nov 11, 2007 08:44 AM
FYI.. RBI is one of the finest Central-banks. They have managed the economy quite nicely so far. Lets not always be complaining. We Indians, always like to point at our shortcomings, totally ignoring the bright side.
RE:forex issues.
by Bharani kumar. Pasala on Nov 22, 2007 09:52 PM
It is not complaing about the central bank's performance. As i am watching the global markets/economies very keenly for the past 4 yrs i was bit disappointed the way RBI taking the steps slowly. if RBI works more efficiently and cut time delays in implementing strategies/policies it will ahead/equal with developed economies.
India is worried of its ever growing forex reserves and its idleness. It is better for India to diversify the funds available than to lower interest rates to be less attractive to foreign investments. It may be true that it may fuel local economic activities but then it is not a permanent solution. RBI should be alive to the steps taken by other vibrant and growing economies like that of China and Russia and how they have diversified their funds. China for example is attracting much FDI as much as 200 times more than India and it is successful in diversifying its ever growing forex fund through diversificatin of its economic activities. Idle money bring no income and it should be best utilised. The idea of creation of SWF is not bad as long as our managers particularly RBI evolve some dynamic portfolios for spending such reserves and creating a healthy domestic vibrant economic activity without jeopardising the interest of the FDIs and others. The think tank in the Finance Ministry and RBI can act fast and come out with a solution to tackle the situation in the best possible manner.
RE:Risky business
by ritesh agarwal on Nov 10, 2007 04:00 PM
Sovereign Wealth Fund is typically meant for overseas investment and is handled by sophisticated fund managers so there is less chance of 'babudom'
RE:Risky business
by MS on Nov 11, 2007 04:44 AM
you and i hope it will be handled by "sophisticated fund managers"... the end result may be something else
Is this fund creation similar to an individual parking his funds for future such as wealth building or pension planning in his/her earning/accumulation age? Is RBI the saving/investing arm on behalf of Government of India ?
RE:Governments to have their own fiscal discipline
by ritesh agarwal on Nov 10, 2007 04:02 PM
No, SWF is a fund created from foreign exchange reserves of a country. Common public has no investment in it. RBI is not the investing arm but is a regulator. If India creates a SWF then RBI can act as an investor on behalf of Indian government however generally a separate entity manages SWF in other countries
