People's Democracy

 THINKING TOGETHER

"Shining India : Orchestrated Euphoria" written by Sitaram Yechury says that the forex reserves are bulging because of (of many factors) reduction in imports of non petroleum products.  Reduction of imports is a positive indicator for a nation's economy. This is contrary to the spirit of the said article. 

As earlier reported, the forex reserves are bulging because of  the portfolio investments like in stock market and currently the FDI are coming into loans (due to higher rate of interest than international rate) sector which is also non-productive sector. 

The point I wish to bring to your notice is that the portfolio investment  is the main cause of the forex reserves which was not mentioned in the said article.

GVN Chalapati, Visakhzapatnam, AP

YOU are right.  We have repeatedly mentioned in the past in the columns of People's Democracy that bulk of foreign investment coming into India is portfolio investment and not foreign direct investment.  We also have repeatedly mentioned that this portfolio investment is like "hot money" which cannot be used because the demand for its return is constantly there. 

The focus in the article was to show that high foreign exchange reserves are no consolation or an indication of positive economic health.  It is wrong to conclude that reduction of imports is always a positive indicator.    Reduction, as a consequence of diminishing demand, reflects lower levels of economic activity with higher unemployment. Reduction of imports as a measure of domestic economic self-sufficiency is another matter.  But reduction of imports due to diminishing demand is worrisome for the economy. 

The main thrust of the article was to debunk the false claims being made by the government and not an in-depth analysis of the nature of the forex reserves. Hence, these details have not been dealt with.