CHENNAI: Nobel laureate and economist Joseph Stiglitz has suggested India use part of its foreign exchange reserves to fund infrastructure development.

Though such a measure was controversial, one of the advantages that India enjoyed was the large amount of foreign exchange reserves it had. "There have been some discussions about investing some of those reserves in infrastructure ... [it] makes a whole lot of sense," he said, delivering a lecture on `Making globalisation work' organised by The Hindu here on Thursday.

Accord priority

Prof. Stiglitz, responding to queries at the full-house IMAGE auditorium, said the focus ought to be on sustainable, equitable and democratic development. One aspect of sustainability was investment, including that on infrastructure. It was something that needed to be accorded high priority. However, the recent discussions in India about increasing the degree of capital market liberalisation were a matter of concern. Apart from reducing the degree of autonomy, it would expose the country to destructive capital flows, he said. The autonomy of a country came under pressure when it borrowed extensively from abroad, and in the process became dependent, particularly when the borrowings were of short-term nature. "Debt policy becomes an instrument by which you become less autonomous," he said, calling for policies that support a high savings rate.

Cautioning India against going in for capital account convertibility and allowing short-term capital into the economy, he said the move could create instability.

It was wrong to say that there would be no foreign direct investment without capital market liberalisation, Prof. Stiglitz said. He cited the example of China, which got substantial FDI without having capital account convertibility.

Stating that jobs could not be created with money that came in and went out, he said that while long-term capital resulted in growth, short-term capital did not. To another query, Prof. Stiglitz cautioned against "excessive fiscal austerity" and said Brazil's case was an example of a country that was done in by such a measure.

Printer friendly page  
Send this article to Friends by E-Mail