Muddles on Forex for Infrastructure

The best economists of India, both inside and outside the government, are locked in a fierce debate on the proposal for swapping infrastructure for foreign exchange reserves, put forth by the Planning Commission. A key concern raised in the debate is that dollars can be spent only on imports while infrastructure largely requires the acquisition of domestic resources. Careful analysis reveals, however, that at least this concern is without foundation: the import intensity of infrastructure is virtually irrelevant to the final outcome!