Sometime back, we have had a nationwide debate on whether or not to use the surging foreign exchange reserves that are lying idle for infrastructure development in the country. One section of the economists led by the Planning Commission, believing that the current level of foreign exchange reserves is pretty good to meet the import requirements and all other external payment obligations of the country for more than normally accepted periods, and as maintenance of reserves of such magnitude is costing the country dearly, opined that usage of foreign exchange reserves to augment infrastructure development in the country is a viable alternative.

As usual, there is another school of economists who argued that using Forex reserves for infrastructure development is not a prudent act, for usage of short-term funds for long-term purposes that too, for investments which do not ordinarily generate foreign exchange earnings, can create liquidity crisis should FIIs withdraw their investments from the capital market. In support of their argument, they even cited the 1997 East Asian crisis.

They have another argument, which is very fundamental in nature and thus merits everyone's attention: the current level of poor private investment in infrastructure project is not due to lack of funds but more because of lack of clarity in our policy initiatives. How else, they questioned, can we explain the high inflows of private capital into sectors like telecom while little or nothing has flown into roads, power transmission, etc. And they did have a point to make.

Probably, infrastructure sectors such as roads, power generation and transmission, etc., are not making business sense to private investors, either due to frequent shifts in our policy stances or the embedded social obligations of those projects, where non-enforceability of toll collection on all, free supply of power to certain sections, etc., is in vogue. In other words, what is being argued is that it is not lack of funds, but the conducive "atmospherics" that is holding back private investments to flow into infrastructure.

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