Question

How can foreign exchange reserves be used to fund infrastructure?

Answer 1

For infrastructure financing both the central and state governments seek assistance from the World Bank group or Asia Development Bank or may be in future from Brics Bank. It is long term in nature repayations ranging from 50 to 100 years with nominal interest rates at 1% or less.

Foreign Direct Investment by overseas corporate bodies are another option as happens in case IT industries, where technology is transferred.

In India RBI maintains foreign exchange reserves as a stabilizing measure for Indian Rupee. Besides the authority to issue currency notes it has to maintain foreign exchange and gold bullion as part of the minimum reserves system.

So foreign exchange reserves are not invested in building infrastructures. The quantum of reserves is low in comparison to domestic infrastructure development requirements.