Invest 10-15% of forex in SPV abroad: Ficci

As a long-term measure to minimise the effect of the appreciating rupee, the Federation of Indian Chambers of Commerce and Industry (Ficci) has urged the Reserve Bank of India, ministry of finance and the prime minister to put 10-15 per cent of India's foreign exchange (Forex) reserves in a special purpose vehicle (SPV) and invest abroad.

"This amount can be put it into massive holdings which would buy prudentially analysed properties, stocks, equity, shares, mutual funds et al," Amit Mitra, secretary general Ficci said.

According to Mitra, apart from giving immediate sops to exporters to help them tide over the impact of appreciating rupee, devising a long term solution is a must.

The rupee has appreciated by over 17 per cent in the last one year, hitting the Indian industry hard. The sectors that have been worst hit include textiles, automobiles, Information Technology (IT) and others.

"The moment a foreign currency is converted into rupee or sterilised, demand for rupee strengthens there by leading to its appreciation. However, if the same amount flowing in is invested in the same currency abroad the pressure on rupee lessens," Mitra explains.

"This initiative has worked well for Asian countries like China, Singapore, Kuwait and others, where forex reserves are flowing. This is how Singapore has been able to set up an Information Technology (IT) park in Bangalore," Mitra added.

According to Mitra, none of the four gateways to strengthening rupee namely Foreign Direct Investment (FDI), Foreign Institutional Investor (FII), money transfer, and External Commercial Borrowings (ECBs) can be curbed or done away with.

"The government can neither stop FDI/FII nor money transfers. Restraining ECBs in any significant manner will again disincentivise investments as the cost differential arising out of 13-15 per cent interest rates charged by the Indian banks and 8-9 per cent interest rates offered by banks abroad is huge," Mitra said.

"This leaves us with an important policy area which is to take away $30 billion, hardly 10-15 per cent of the over $260 billion forex reserves, in a SPV and invest abroad," added Mitra.