Tuesday, December 25, 2007

FICCI seeks $1.4 bn of forex reserve for tech deveelopment of SMEs

         Industry body FICCI on Monday said the government should consider earmarking about one per cent of India's forex reserves - around $1.4 billion - to set up a fund for technological upgradation of domestic SME units.

In a representation to the National Manufacturing Competitiveness Council, the chamber said a Global Technology Acquisition Fund should be set up for Indian SME manufacturers with funds from the country's foreign exchange reserves.

"Such a fund would ensure fast track development of technology for domestic SME manufacturers, enabling them to acquire latest technology without getting into the expensive and long process of technology development," FICCI Secretary General Amit Mitra said in a statement.

If two per cent of SME production is taken as a yardstick for investment in technology, the fund amounts to around Rs 5,500 crore or $1.4 billion, which is less than one per cent of our existing forex reserves, it said adding that the amount could be reviewed by the government periodically.

The measure would not only ensure optimal utilisation of the reserves but also help government tackle the growing problem of forex inflows, it said. The fund would help SME manufacturers acquire know-how, patent and design from universities and research institutes.

The chamber further said a Special Purpose Vehicle can be formed for the fund, which would borrow rupees from RBI by issuing securities and buy dollars from the bank in the foreign exchange market to lend it to manufacturers.

Such a mechanism would be inflation and liquidity neutral as it would help in sucking out dollars from the country, thereby easing pressure on the domestic currency, it added. Currently, the size of such sovereign funds globally is about 2.2-3.2 trillion dollars and this is expected to touch 10 trillion dollars over the next 10 years, it said.
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