ISSN (Print) - 0012-9976 | ISSN (Online) - 2349-8846

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Asking for Trouble

IT is typical of the times that the expert group on the working of the foreign exchange market in India, known as the Sodhani Committee, which was expected to recommend measures for the growth of "an active, efficient and orderly foreign exchange market", should have very self-consciously confined itself to the mechanics of the foreign exchange market without any concern for the broader economic implications of its proposals. For instance, is the proposed setting up of so-called Offshore Banking Units only a simple issue concerning the foreign exchange market or does it have broader monetary, fiscal and financial policy implications? Likewise, the proposal to permit banks to lend, invest and borrow short-term funds up to six months in the overseas markets has obvious foreign debt implications, just as the suggestion that inter-bank borrowing be excluded from banks' demand and time liabilities for CRR and SLR purposes raises monetary policy issues.

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