• Special purpose vehicle to be set up shortly
  • Money will be used for importing capital goods

    NEW DELHI: The Union Government will soon start using foreign exchange reserves for improving the country's infrastructure by creating a company for the purpose within the next three months.

    ``We will set up in the next two to three months, the Special Purpose Vehicle (SPV) that I had promised,'' Finance Minister P. Chidambaram said in an interview to CNBC-TV18 on Friday.

    The SPV would borrow forex reserves from the Reserve Bank of India and co-finance external commercial borrowings (ECBs) for import of machinery by Indian firms, he said.

    India is sitting on huge forex reserves of more than $200 billion, one of the largest in Asia, and the debate on using this fund for improving infrastructure has been going on for quite some time.

    The Government has pegged the country's infrastructure investment requirements at $320 billion in the next few years. Mr. Chidambaram disagreed with the view that using these reserves for core sector projects would fuel inflation, saying it would be spent outside India for buying capital goods.

    Foreign reserves if spent outside the country, he said, would not lead to inflation. Moreover, companies were already allowed to invest up to three times of their net worth abroad.

    On capital account convertibility, he said developed economies had achieved the full currency float and India should also learn to manage "fully or near fully convertible capital account.''

    Food security

    On agriculture, he said consumers should be ready to pay extra for achieving food security for the country.

    Farmers were subsidising Indian consumers who do not mind "paying Rs. 10 for a mineral water bottle'' but resent paying even one rupee extra for wheat or sugar, he said.

    Referring to the controversy over Prime Minister Manmohan Singh's remarks on CEOs' salaries, Mr. Chidambaram said the Centre had no plan to make any legislation in this regard.