AsiaInt Economic Intelligence Review, April 2005

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One of the most prominent features of India's economic development over the last five years has been the massive growth in its foreign exchange reserves. At the beginning of April 2005 they had reached an all-time high of over US$140bn, the sixth-largest in the world after Japan, China, Taiwan, South Korea and the Euro zone. Now, in a move that has alarmed bodies such as the International Monetary Fund, the government has said that forex reserves could be used to fund infrastructure projects. It is worth examining the background to India's policy, and whether the government is right to ignore the IMF's warnings_