By Vipin Agnihotri
As expected, the problem of plenty has finally started showing its ugly face. And for developing country such as India, bitter though it may be at the first look, nothing could have been sweeter irony than this.
According to experts, the ever-rising forex reserve has literally pushed India to join the league of failed states such as Afghanistan and Somalia. Latest figures reveal that the Indian forex reserve has already crossed the US $ 220 billion mark.
No doubt, India has been able to mitigate age-old syndromes of pledging gold and begging for alms from the likes of IMF. But no one will argue with the fact that the incredible flow of foreign funds in the form of investments and export earnings has augmented the demand for the rupee and eventually made it much stronger than what most experts anticipated.
In my opinion, with more and more investments flowing in, the pressure on rupee, which at present is at Rs 40.35-40.40 levels to the dollar, would further enhance, putting plenty of strain on export incomes. It has come into the notice of The India Street that not only merchandise exporters are reeling under the noose of the tightening rupee but also high-end software and service exporters.
Software and service exporters are apprehensive whether at all they would be able to meet their revenue forecasts for the next financial year. Some may say that increasing flow of funds would make sure that more jobs are created in the short term but the fact of the matter is that if this continue for a longer run it would not only weaken the economy but will also lead to an eventual flight of dollars.
To get rid of all this, India’s policy makers have to buy foreign assets rather than sitting idle on the piling forex. This will not only increase the supply of the rupee, thereby easing the pressure but also increasing India’s toehold in the global private equity market. At the same time, it can also plough back part of the same to increase spending in the social and physical infrastructure arena, albeit through the private equity route.
Following this strategy would not just give higher returns on funds, but also make sure that India reaches the logical conclusion of its economic reform process.
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