Letters: India's need for a credit line

This refers to Subir Gokarn's column "Capital flow conundrums" (Muddy Waters, March 25). The article was excellent and comprehensive; however, there was one important omission. The author did not mention the role of an international credit line as a safeguard against sudden outflow of capital from an economy. Such a credit line is an option - not an obligation - to borrow internationally in the event of a crisis when the usual credit market tends to dry up. It avoids the need to keep large, costly foreign exchange reserves, and reduces the need for capital controls. In recent years, the US has had swap credit lines with a number of countries. There is the Chiang-Mai Initiative in East Asia and the Latin American Reserve Fund in Latin America. There is now an arrangement among the BRIC (Brazil, Russia, India and China) countries. India has a small credit line from the Bank of Japan. The International Monetary Fund (IMF) has extended credit lines to Columbia, Mexico and Poland. Though all this is encouraging, the arrangements are still small relative to the needs of the global economy. Accordingly, there is also a need for international credit lines on a much larger scale. At present, India has a large current account deficit. There is a strong need for an instrument like an international credit line on a large scale. It is important that India arranges for it. This may be from the IMF, but it need not be.

Gurbachan Singh New Delhi

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