The Temasek model

The Temasek model

Next week, it is very likely that the finance minister will make some statement in his Budget speech about how the $190 billion of forex reserves with RBI should be used to fund domestic infrastructure, rather than be used to fund the current account deficit of the US.

Meanwhile, China has announced that it will transfer a part of its own trillion-dol-lar pile to a national invest-ment company that will in-vest these dollars abroad. The oil-rich Gulf states, too, have similar investment funds. The big daddy of this category is Singapore, which has invested globally via Temasek and the government investment fund.

But all the official private-equity monsters have set their sights on international investments. What our government is talking about is quite different—to use the reserves for domestic investment. A special fund owned by the government will borrow money from RBI and make the investments.

There is another name for such borrowing by a government from a central bank. It is called deficit finance. And India needs less of deficit finance, rather than more.