Austin wrote:Cant the government just borrow from RBI the excessive forex at low interest and use it on infra project ?
The RBI did not create the forex. It received them in lieu of rupees issued to exporters, foreign investors, remittance receivers etc.
The govt cannot spend dollars on infrastructure - it is not legal tender in the country. It can borrow capital for infra but that is done through debt instruments who’s interest rate is only peripherally linked to the size of the RBI’s forex reserves.
Standard practice for dealing with currency risks related to high forex holding is to invest them in foreign gilt-edged bonds (the most popular being US treasury securities).