RBI must use reserves for domestic investment, says Economic Survey

The Economic Survey once again suggested the Reserve Bank of India (RBI) use its reserves for domestic purposes rather than keeping them unutilised and invested in low-yielding assets abroad. 

“A developing country like India needs to spend on domestic investments to spur growth. The surplus, therefore, gives adequate space for increased expenditure on investments in 2021-22,” the Survey said.

The Economic Survey had, in the past, debated the RBI’s adequacy of reserves and suggested the excess be spent on infrastructure, or be spent to recapitalise banks.

As on January 22, the RBI’s foreign exchange reserves stood at $585.33 billion, up from $466.7 billion a year ago. Sustained accretion to foreign exchange reserves has improved India’s import cover to 18.4 months, and the reserves cover 236 per cent of the short-term debt in terms of residual maturity.

The reserves have risen as imports contracted and the country turned surplus. “A current account surplus implies a higher level of national savings relative to investment.” The reserves, however, are invested in bonds of other countries, the Survey said.