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January 12 2003

Most think PM lied over Kelly - poll

Jan 11 2004

Fewer than one in four people believe Tony Blair's account of events surrounding the death of Dr David Kelly, a poll revealed.Half said the Prime Minister was lying when he said he did not sanction the leaking of Dr Kelly's name, the YouGov survey found.

Less than a quarter, 23%, said Mr Blair was telling the truth, according to findings published in The Mail on Sunday. Another 27% are undecided.The Government carries the brunt of the blame for Dr Kelly's death, the study showed. Full Report

Young Achievers

Sruthi Bhadran Kalathilakam Kayam Kulam

Invading Iraq not a new idea for Bush clique

But in reality, Rumsfeld, Vice President Dick Cheney, and a small band of conservative ideologues had begun making the case for an American invasion of Iraq as early as 1997 - nearly four years before the Sept. 11 attacks and three years before President Bush took office. More

Secret Letter written by the Oil Energy linked War Cabinet

INDIA’S 100 BILLION DOLLAR RESERVE – A HISTORIC LANDMARK

S. Sethuraman**
12:49 IST

India’s rising foreign exchange reserves have, sooner than expected, hit the 100 billion dollar mark. This reflects the country’s growing economic muscle, underpinning its ability to conduct sound external policies and overcome any shocks from the global exchange rate or financial systems.

Till the 1980s, India had been under continuous pressure on the foreign exchange front and had to seek, from time to time, balance of payments support from the International Monetary Fund, apart from relying on external development assistance, bilateral and multilateral, to finance development.

Massive trade deficits of the l980s, in particular, coupled with oil price peaks in 1990-91 led the country into the worst ever external crisis in its post-Independence history when gold had to be pledged abroad to meet immediate payment obligations and an approach had to be made to IMF for a standby facility to ease the situation.

Converting the crisis into opportunity, in 1991 India launched the path-breaking liberalization of the economy and structural reforms covering the areas of trade, industry, investment, exchange rate and banking. Remarkably within two years, India not only tided over the crisis but also began attracting non-debt creating inflows, direct and portfolio.

The 1991 rupee devaluation was followed by the unification of the exchange rate which became market-determined in 1993 and reserves began to be built up, enabling India to make the rupee convertible for current account transactions in conformity with the IMF Articles of Agreement.

Convertibility on the capital account is available to foreigners, individuals and enterprises, and NRIs but not yet to resident Indians. Developing countries in general follow a cautious and gradual approach in regard to full capital account convertibility, a course encouraged by IMF itself, having regard to each country’s macro-economic and other factors.

The exchange rate reforms helped India to secure all remittances and transfers from abroad through legal channels. As a result, the level of reserves including gold steadily rose from year to year during the l990s, and the build-up has accelerated over the last three years.

The increases were in double-digit from 2000-01 (over 12 billion dollars) with a dramatic increase of over 20 billion in 2002-03. From 75 billion dollars at the end of March 2003, the reserves have now exceeded 100 billion dollars within the first nine months of the current fiscal (2003-04).

Announcing this major event for the Indian economy in Parliament, the Finance Minister, Shri Jaswant Singh, said the reserves, accumulated through prudent management by the Reserve Bank of India of the exchange and interest rates, liquidity conditions and capital flows, would impart greater momentum for bolder reforms to achieve higher growth rates of the economy.

In the post-liberalisation era, a steady rise in current receipts, with export growth in most years narrowing trade deficit, and significant increases in "invisibles", mainly remittances from Indians abroad and lately software export receipts, helped to contain the current account deficit to an average of around one per cent of GDP. In the last two years, India recorded a surplus on current account.

The 25-billion dollar addition to reserves between April and December 19, 2003 is after prepayment by India of about five billion dollars of higher cost loans of the World Bank and the Asian Development Bank and redemption of 5.5 billion dollars on account of the Resurgent India Bonds, which India floated in 1998-99.

India has already embarked on a policy of reducing dependence on external loans, limiting it to half a dozen major bilateral creditors and the multilateral institutions and these are linked to infrastructure projects and social sector programmes. The role of external aid, which was the principal component of available foreign exchange resources in the earlier decades, has been somewhat downgraded as India did away with assistance from smaller countries. India in turn has waived some debts owed to it by smaller nations.

Both the Finance Ministry and the Reserve Bank had from the beginning laid emphasis on prudent management of external finance so as to limit inflows of short-term capital as well as access to high-rated external commercial borrowings. With the lowering of international interest rates, the corporate sector has found it possible to prepay commercial borrowings to the extent possible.

Thus, India’s quantum jump in reserves has taken place without adding to the stock of external debt, which stood at 104 billion dollars at the end of March 2003. Indeed, the cautious management of the reserves has helped to bring down the ratio of external debt to GDP from 28 per cent in 1990-91 to 20 per cent in 2002-03 and debt-servicing ratio from 35 per cent to 14.7 per cent of current receipts in 2002-03.

On an average, the net invisible, inflows minus the outflows, have largely offset the deficit on trade account with inward remittances, now of the order of 14 billion dollars, and earnings from software exports over nine billion dollars. Outside the current account, net capital flows, mostly non-debt creating, have been of the order of 10 to 12 billion dollars. These are made up of foreign investment (direct and portfolio), bank capital and NRI deposits besides limited short-term credit. Borrowings, official and private, are no longer a significant contributor to foreign exchange inflows as repayments often exceed disbursements.

As the Finance Minister pointed out in his statement, the higher the level of reserves the greater its contribution to national security and welfare, apart from its providing considerable autonomy in domestic economic management consistent with India’s international obligations.

The Reserve Bank has been liberalizing the use of foreign exchange for various economic, educational and social purposes and corporates can have access to needed foreign currency reserves for their domestic and global activities. Residents have been allowed to maintain bank accounts in foreign exchange.

Given its highly comfortable position, India has now become a creditor country under the IMF’s Financial Transaction Plan (FTP) whereby such credits can be used for lending to other member-countries. At 100 billion dollars, India is among the first five emerging economies having the largest stock of international reserve assets.

There has been much debate on the optimum level of reserves that a country should keep. It would depend on factors like the size of current account deficit, short-term liabilities including current repayment obligations on long-term loans, likely variations in investment flows and a cushion for external shocks which could arise from exchange rate volatility or financial market disturbances.

Above all, the level of reserves helps a country to maintain international confidence about its honouring obligations and its overall monetary and financial policies. The Reserve Bank has often said that it keeps under review the costs and benefits of holding reserves. Its assessment is that the cost of reserve accretion is quite low and is likely to be more than offset by the return on additional reserves which are invested. (PIB Features)

**Senior Freelance Writer