Regular readers of this column might remember my argument that one should adopt an attitude of benign neglect towards the rising levels of reserves; that they are the result of the exchange rate policy; and that the policy, broadly speaking, has been quite reasonable in relation to the needs of the real economy.
After we peremptorily decided to discontinue aid from politically lightweight countries and prepaid their soft loans, I have second thoughts about the benignity of the reserves.
Not that I have changed my view about the exchange rate policy, but I fear that the level of reserves may be blinding our political masters to the reality of our still being one of the poorest countries in the world in terms of per capita incomes, and very low on the Human Development Index.
Be that as it may, as the reserves keep rising, an increasing number of commentators are advocating a change in either the exchange rate policy or the interest rate policy, if not both. One school feels that the Reserve Bank of India (RBI) should give up the attempt to manage the exchange rate and allow it to float upwards
Disclaimer: These are personal views of the writer. They do not necessarily reflect the opinion of www.business-standard.com or the Business Standard newspaper
