ECONOMY by VIVEK SINGH

2021-05-29 08:11:40 The above is news from Indian Express. Let us understand few points. Read it carefully.

1) The currency swap agreement between two countries (say A and B) happens at Central Bank Level. Country A gives its currency to country B and country B will give its own currency to country A. And the countries will keep on paying the interest on the currency which they have taken from the other country. And after a fixed period the swap is again reversed which means country A will get the principal amount from B and country B will get the principal amount of its currency from A. This is a kind of Standard agreement.

But now there can be certain deviations in such agreements depending on mutual agreement like:

(a) Country A takes the currency of B but B does not require/take the currency of A. See it will not impact BECAUSE country A will keep on paying the interest on the currency and amount which it has taken from B and after a fixed period country A will return the principal amount also to B. So, in this case B did not take anything from A BUT it does not matter because A has kept on paying interest on the money taken and then paid the principal. So, this is a kind of credit/loan facility for country A because B did not take any currency from A. That is why in this case it is called an (open ended) credit/loan facility. Why open ended because two countries can sign such agreements for a certain period but they will use only when required.

(b) This swap agreement can also be in the form of third currency. Now in the above news, Sri Lanka wants dollars but not Bangladeshi currency and Bangladesh do not require at all any Sri Lankan currency. So, in this swap agreement a third currency has been offered. So, Bangladesh will offer dollars (from its dollar reserves just for help) to Sri lanka and Sri lanka will keep on paying interest in dollars and after a fixed period Sri Lanka will return the (principal amount) dollars. So, ideally Sri Lanka should pay interest in dollars because it has taken dollar currency from Bangladesh but upon request of Sri Lanka, Bangladesh may allow Sri Lanka to pay interest in Sri Lankan currency. So there can be variations/exceptions and accordingly calculations can be done. Since Sri Lanka will keep on paying interest on the amount taken from Bangladesh and will return the principal amount (in dollars) too after the fixed period, SO it does not matter even if Bangladesh did not take any currency from Sri Lanka or not. AND if Sri Lanka is not able to pay the dollars (principal) amount they both the countries can adjust this in trade (imports from Sri Lanka into Bangladesh).

2) If Sri Lanka will borrow the same amount of dollars from the market, it will have to pay much higher interest rate. If Sri lank sells its own currency and purchase dollars in the forex market then its currency may start depreciating a lot. So, in such situations, currency swap agreements become helpful because these are OUT OF MARKET transactions at country level.

3) So, currency swap agreements are quite helpful in case a country's forex reserve is declining and it has obligations which can be settled only in dollars/forex like repayment of external loan or imports of some essential. Open / Comment

2021-05-29 07:50:08 Open / Comment

2021-05-28 06:55:34

Open / Comment

2021-05-27 07:09:46 Open / Comment

2021-05-26 20:35:37 As per the advance estimate of Ministry of Agriculture, India's estimated production of Food grains, wheat and rice is going to be maximum in in 2020-21 (crop year).

Food grains = 305 MT
Wheat = 108 MT
Rice =121 MT

Food grains include wheat, rice, pulses and coarse grains Open / Comment

2021-05-25 08:13:10 In Today's Hindu it is reported that FDI inflows into India in 2020-21 is $81 billion. But one week back on 18th May there was a news that FDI inflows is $54.6 billion in 2020-21. (https://t.me/VivekSingh_Economy/2984). Pls do not get confused.

Actual inflow is $54.6 billion in 2020-21. But the accumulated FDI over the past years gives profit to the foreign investors which they can take out of India or Reinvest in India. Once we include the reinvested earnings then it becomes $81 billion and sometimes referred as gross FDI. Both the data is reported depending on the context, but generally reinvested earnings are excluded.

Maximum FDI received from Singapore> US> Mauritius
Maximum FDI received state wise Gujarat> Maharashtra> Karnataka
Maximum FDI received sector wise Computer Software and hardware> Infrastructure construction > services Open / Comment

2021-05-24 08:08:56 Nothing relevant in the newspapers. There is an article on editorial page in HINDU today titled "Recalibrate growth, reprioritise expenditures" by C Rangarajan is not relevant and you can ignore. These days mostly Covid related news is being reported, if something relevant comes for economy will definitely post it. Open / Comment

2021-05-22 15:39:10 Support the farmers but there is a proper way which should be sustainable in the long run. Thirty years back our village water was so pure that we used to drink the borewell water/pump water as it is directly. But now urea has brought color, smell, taste... to that water and the poor villagers are being forced to purchase RO or bottles....This is not at all sustainable development. Open / Comment

2021-05-22 15:39:10 The above is article from Indian Express. The article is good but there is too much data and students may get lost in the data while missing the crux. So, let me simplify it.

1) In India the price of UREA is regulated/fixed by the Govt (Rs. 5.37/kg) while the prices of other fertilizers like DAP (Diammonium Phosphate), MoP (Muriate of Potash) and other fertilizers have been deregulated i.e. prices are decided by market forces.

2) Govt. asks Urea companies to sell urea at Rs. 5.37/kg to farmers but the international market price is quite high (Rs. 18/kg....). If the cost of production of Urea increases (because of increase in Nitrogen price) then also farmers get Urea at a fixed rate of Rs. 5.37/kg and GOVT. incurs the burden of higher cost in the form of higher subsidies. So, in case of UREA, price is fixed for the farmers but Govt. subsidy increases/decreases depending on increase in cost of production of Urea (which mostly depends on gas as inputs).
BUT this is not the case of other fertilizers. In case of DAP, MoP, SSP... Govt has fixed the subsidy amount and deregulated the prices. So, if the cost of production of these fertilizers increases because of increase in inputs like P and K then the the fertilizer companies increase the price for the farmers as the subsidy is fixed by the Govt. Generally Govt. announces the subsidy on DAP, MoP, SSP.. every year at the start of financial year which remains fixed round the year. And next year again it announces which does not change much with the previous years. This subsidy is announced by the Govt. in the form of per KG of nutrient present in the fertilizers of DAP, MoP, SSP etc. So, based on how much which nutrient (like N, P, K, S ...) is present in these fertilizers... companies get a fixed subsidy on per KG of DAP/MoP/SSP produced.

3) So, this year also Govt. announced subsidies on DAP/MoP/SSP in April 2021 which should have been applicable till 31st March 2022. BUT because of the considerable rise in international prices of oil and gas recently... the Fertilizer companies increased the price of DAP/MoP/SSP. For example IFFCO increased the price of DAP per bag from Rs. 1200 to 1900. So, since in April ... elections were there in 5 States... so, Govt. requested these companies to not increase till the elections ... And for some companies their old stock was there which they were selling at earlier prices. But now almost all the companies selling these fertilizers have increased the prices. Ideally Govt. should not have intervened and it would have let the prices increased which would have increased the cost for farmers. But may be due to Covid and the farmers protest... Govt. intervened and have increased the subsidy which has resulted in DAP/MoP/SSP prices being sold at the previous rates.

Do you know why UREA price is fixed so low and DAP/MoP/SSP... prices have been deregulated???
Because it is politics. Indian farmers consume/purchase more urea (80% is urea consumption) and if the prices will be deregulated/freed then farmers will get impacted and the Govt. which will do it will loose the elections. Ideally it should deregulate Urea also and Urea subsidy should also be brought under Nutrient Based Subsidy (NBS) just like DAP/MoP/SSP.... where prices are decided by market and subsidy of Govt. is fixed.

Govt. rather than increasing the subsidy of DAP/MoP/SSP.... what else it could have done??
It could have transferred more cash under PM-KISAN to cushion against this burden.

Actually increasing subsidy one time will lead to more such demands whenever there will be an increase in prices and the purpose of NBS reform will get lost.
I personally do not support such moves, it hinders long term prospect of Indian Agriculture. If it has been done because of Covid second wave which has now hit Indian rural sector also then it is fine but if there is any other intention/reason then its not good. Open / Comment

2021-05-22 15:02:41 Open / Comment