Discuss the various avenues to utilise the excess foreign exchange reserves of the country to maximise the returns. (200 Words)
Refer - Business Line
Enrich the answer from other sources, if the question demands.
IAS Parliament 4 years
KEY POINTS
India’s foreign exchange reserves have been increasing sharply with reserves hitting $580 billion.
Avenues for utilising forex reserves
Conventional options
· Utilising these funds for financing infrastructure development. But using forex reserves for infrastructure funding could lead to the increase in government debt.
· Other option is to use the reserves for capitalising state-owned banks, but it is getting exposed to currency risks, as the injected capital was in dollars.
Reliable options
· A more constructive option would be to use the excess reserves to import goods thus leading to dollar payments abroad.
· This would solve the dual objectives of enhancing assets and mitigating complications to monetary management.
· A certain portion of the excess reserves can be allotted as an alternative fund and invest in areas which generate higher returns.
These options would create alternative avenues of garnering long-term returns/income without the risks and complications safeguarding central bank independence of usage of reserves within the country.
Harsh 4 years
Please review
IAS Parliament 4 years
Good attempt. Keep Writing.
Venkateshwaran R 4 years
Kindly provide feedback.
IAS Parliament 4 years
Try to include about using the reserves in importing goods. Keep Writing.
Rahul 4 years
Kindly review.thank you.
IAS Parliament 4 years
Avoid listing out points and try to explain them briefly. Keep Writing.
aswin 4 years
Please review
IAS Parliament 4 years
Good attempt. Keep Writing.
