Weekly Roundup of Business Newspapers for UPSC CSE. (Period: 14th Dec 2020 to 20th Dec 2020)
Hello students, welcome to BYJU'S IAS. Welcome to a section on Economy this Week wherein we'll be taking up some of the very important articles that have appeared in various business-related newspapers and will be analyzing these particular articles for this particular video, I have chosen the time the period from 14th to 20th December 2020 and the articles that I've chosen are from: Business Time, Hindu, Business Standard, Indian Express, LiveMint and Financial Express. let's start the discussion the first article is with respect to currency manipulation very recently US Treasury has published its semi-annual foreign exchange report and as per this particular report, it has basically labelled two countries Switzerland and Vietnam as a currency manipulators and it has listed 10 other countries and has kept them under the watch list now before looking at the important points given in the article let's look at some of the very important basics an open economy such as India will basically allow certain transactions as a result of which there is an inflow for dollars and certain transactions as a result of which there is an outflow of dollars and again please understand this although other currencies are used since the dollar is a universal currency I'll speak in terms of a rupee and a dollar now whenever dollar inflow will happen it essentially will lead to what exchange of a dollar or conversion of a dollar into rupee and vice versa whenever there has to be an outflow of dollar for example whenever FDI flows into India FBI flows into India exports go out of India to the rest of the world, remittances come into India there is a need for converting dollars into rupees and vice versa that is an outflow of FDI out remittances outflow of FDI imports coming into India etc will need rupee to be converted into dollar so essentially because of these and many other transactions there is always a need of a converting domestic currency into foreign currency and foreign currency into domestic currency and in the case of India we follow a process of managed floating exchange rate essentially in case of a floating exchange rate it should be the market forces of demand and supply which will determine the exchange rate that is one dollar is equal to how many rupees but in the case of India, we are following a basic idea of a managed floating exchange rate where it simply means every now and then the central banker that is RBI will intervene in the market and the process of intervention basically is done whenever there is a sudden appreciation or depreciation in the domestic currency because whenever there is huge volatility in the exchange rate especially in terms of a rupee and dollar, it will have an impact on the overall economy in India now in order to control or stabilize the exchange rate every now and then the central banker will keep on intervening in the forex market or foreign exchange market now u.s treasury semi-annually that is basically twice in a year will publish a report which is called as
a foreign exchange report in this particular foreign exchange report it will simply keep a watch or it will keep a close tab on those trading partners where there has been a change in the exchange rate because of certain issues or the exchange rates movement have been abnormal in such countries, those will be closely watched by USA. Now what is the context here in case of this particular report it has basically observed these particular countries for four quarters ending June 2020 and based on its observation and evaluating these particular countries it has classified these particular countries into currency manipulators and those particular countries which will be kept in the watch list now what are the three very important parameters which are considered first the country must be having a trade surplus a continuous trade surplus with USA; in that particular country there should be a continuous intervention of a central banker in the Forex market and this particular country should be having a current account surplus again for all the three parameters there are certain numbers given those numbers are not important so in the case of the countries that is, a Switzerland and Vietnam the u.s treasury says that it has hit all the three important parameters that is the U.S treasury is satisfied that all the three parameters are applicable to these countries hence these countries have been kept under currency manipulator country list and with respect to 10 countries which is including India apart from India countries such as China, Japan Korea, Germany, Italy, Singapore and Malaysia are also present in place these particular countries have been kept under the watch list and from the context of India basically the report says that yes India has a trade surplus with USA but this particular trade surplus is not in the recent times in the last couple of years India has been having a trade surplus with USA hence this particular parameter does not merit India being classified as a currency manipulator but yes with respect to the other two parameters yes in the case of India in the last couple of months especially in the four quarters which was considered by U.S treasury, there has been continuous intervention of central banker in the forex market as a result of which the central banker has amassed more than 60 billion dollars and with respect to the third one yes India has been having a current account surplus but please make a note of this India has been having a current account surplus because of the impact of pandemic and before pandemic the slowdown which affected the domestic or Indian economy so these are certain very important points now what are the other important points given in the article or beyond let's go beyond this once a country is put in the watch list what will happen basically whenever a country is kept under the watch list, for example, India has been placed under the watch list now no immediate sanctions are imposed by USA, but what it basically does is it will rattle the financial market that is the first very important point and once a particular country is placed in the watch list or in the manipulator list, it will continue to remain in the list for the next two reports until the next two reports are published, for example, in case of India it was placed under the watch list earlier in April 2018 and later was taken off from this particular list in May 2019. now apart from this why are we intervened in the market what is the role of rbi in this particular situation now please understand whenever there is a any uncertainty or volatility in the market for example which was created by pandemic generally, there is a tendency of the foreign investors such as foreign portfolio investors or foreign institutional investors to withdraw their funds from one country to another country that is basically take their funds from one country move into another country start investing in those particular countries in case of western markets these particular western markets are flush with liquidity right now because of expansionary monetary policy followed by the central bankers there as a result of this these foreign investors are basically taking their funds and moving into a country such as india and are investing in search of better returns in these particular markets and from the context of India whenever there is a sudden surge of the foreign inflows or foreign financial influence which will happen like this there is a sudden appreciation of Indian rupee which takes place. I will understand the term appreciation here
if you do not know please understand this in case of a floating exchange rate system we use two very important terms depreciation of the currency and appreciation of the currency in case of a depreciation whenever value of one currency falls against the value of another currency I'll repeat the statement here whenever the value of one currency falls against another currency will say that the first currency is depreciating and on the other hand if the value of one currency increases against another currency then the first currency is actually appreciating so in case of floating exchange rate we basically use the term appreciation depreciation in case of a fixed exchange rate we use the term devaluation and revaluation now coming to the point here wherever there is a certain surge of inflow of foreign currencies or foreign flows like this it will basically lead to an appreciation of Indian rupee in the market as a result of this it will have an impact on the competitiveness of Indian exports in the international market now keeping this particular point aside generally when there is a sudden uncontrolled appreciation which will continue to happen in the forex market RBI will intervene in the market and try to stabilize the exchange rate please remember the term stabilization because rb explicitly says that RBI will not fix the exchange rate. RBI is not in the business of fixing the exchange rate it will definitely intervene to stabilize the exchange rate how does RBI stabilize the exchange rate follow the process here what is happening right now the FBI is flowing into India in essence dollars are coming into India when dollars are coming into India these dollars will be getting exchanged with rupees so the dollar supply is increasing and the rupee demand is increasing in essence rupee will start appreciating dollar will start depreciating in order to control this uncontrolled appreciation depreciation of the domestic currency RBI intervenes and in this context rv essentially starts selling rupees and starts purchasing the dollars as a result of this the dollars which are held under the forex reserves under rbi these particular forex reserves have swelled to more than 580 billion dollars now RBI cannot keep on continuing this particular process also for a simple reason there is only limited capacity for dollars which arbei can hold because please understand this various experts are saying this particular 580 billion dollars that are present in forex resources right now are 30 billion dollars more than what is actually required if RBI keeps on amassing this particular forex results in terms of our dollars or foreign currency assets they can invest in certain bonds which will have or which will provide a moderate yield of around two percent that doesn't make any sense in terms of returns earned by RBI so RBI cannot keep on continuing this particular process forever that's the first very important point second very important point when RBI follows this particular process basically i understand this wherein RBI purchases the dollars infuses rupee into the market it essentially will lead to higher liquidity supply in the market now when the liquidity supply is very high in the market it will start increasing the concerns of inflation in the market that's the second very important point now in order to control this particular inflation rbi has no other way but to start selling the bonds in the market and when rbs sells the bonds in the market that will lead to increasing yield rates in the market when yield rates will start increasing in the market it will affect the interest rates in the market interest rates will start increasing but rbi wants the interest rates to be lower so that the lending increase in the market so there is so much of a problem with respect to such inflow forex reserves and the role of rbi in this particular situation so these are certain very important points with relation to this particular article so based on this I've given a question here which of the following criteria are considered by us to designate a country as a currency manipulator the country has to persistently interfere in the forex market to keep the currency relatively weaker yes the country should be running continuous trade surplus with us yes country should have current account surplus yes all the three parameters are considered to designate a country as a currency manipulator if any of the two are correct or applicable then it will be kept under the watch list just like India so based on this particular analysis the right option will be optionally one two and three i've given another question here the term dirty float often appearing in the newspaper refers to is the term related to ganga river pollution no obviously this is economic this week so obviously i will not be discussing environmental related issues refers to the process of black money generation no this is also not true third option when central bank intervenes in the forex market having a floating exchange rate yes this is the actual meaning of the term dirty float so option c is the right option here. The next article is with respect to cabinet clearing sugar export subsidy worth 3500 crore rupees now first and foremost certain very important points here the marketing season for sugarcane starts from 1st October and ends on 30th September second very important point in case of sugarcane there's a concept of fair and remunerative price what's the idea of a fair and regulated price this is fixed by cabinet committee on economic office based on the recommendation given by commission for agriculture cost and prices in case of FRP when the cultivator that is the farmer who has cultivated sugarcane sells this to the mill owner or the sugar mills these particular meals are supposed to pay the price this particular price is frp which is a guaranteed price for the farmers and the frp is fixed by the government third very important point because of a good monsoon last year as well as this year there is a higher acreage as well as a cultivation of sugar cane which has led to higher production of sugar in case of the sugar the estimated demand for this year is expected to be around 26 million tons and because of a good monsoon last year the sugar production was higher and already there is a surplus of more than 10 million tons of sugar in India in addition to this because of a good monsoon this year it is estimated that the cultivation of sugarcane will be higher conversion of a sugarcane into sugar will also be higher and the article says that the estimated sugar production this year for this particular cycle in india will be 31 million tons a sense what i am trying to say is this the demand is a lesser but the availability of sugar in the domestic market is very very high this has led to lower earnings delayed earnings for mill owners they are holding huge amount of a stock now as a result of this the mill owners have in turn delayed the payment to the farmers who have sold the sugarcane to the mill owners and the farmers are part of a consumers of rural india this is basically affecting the consumption in the rural Indian economy to address all these particular issues government of india has proposed to provide a subsidy of 3500 crore rupees for promotion of sugar exports now what is the mechanism proposed here basically whenever the sugar is exported rather than paying the subsidy to the exporter right this particular subsidy will be transferred into the accounts of the farmers this is what has been given in the article with respect to provision of subsidy as a result of this we expect more and more sugar to be exported from india to the international market moreover understand this the government of india has announced this particular subsidy for promotion of exports there are certain concerns which have been raised even with respect to this what are the concerns first and foremost the international prices will have a bearing on how much india will end up exporting because when the international prices will fluctuate even this particular subsidy will not be sufficient to promote exports from india to the international market of this particular community second various experts have stated that the amount of subsidy which was given by government in the last marketing season was much higher compared to how much has been announced presently in the last marketing season government of india provided a subsidy of around i am just rounding off the number six thousand three hundred crore rupees but in the current marketing season government of india has announced only around three thousand five hundred crore rupees now based on the amount of the exports that government of india wanted to promote in the last marketing season per kg the subsidy was over 10 rupees presently it comes somewhere around 6 rupees in essence what i'm trying to say is this amount of exports that government of india wants to promote or wants to achieve under this particular scheme is six million tons so these are certain very important points which have been provided in this particular article with respect to government of india providing export subsidy of 3500 rupees to promote sugar exports the next article is with respect to announcement of government of india to develop gas infrastructure certain very important points given in the article are one currently out of the total energy mix the share of a natural gas is around six percent and government of india wants to increase this to 15 percent by 2030 second very important point government of india proposed to invest 60 billion dollar to develop gas infrastructure and this particular investment is expected to happen in the next four years that is till 2024 third very important point the gas infrastructure that the article basically refers to is a developing pipeline infrastructure there is a gas pipeline infrastructure lng terminals and ct gas distribution that is essentially cgd now with respect to all the three certain points have been given in the article with respect to lng terminals the government has basically announced that in order to promote using lng as an important fuel for transportation government is proposing to set up 1000 lng fuel stations across india next with respect to cgd the article mentions that the cgd projects are going to increase to cover more than or 400 districts this alone will cover 53 percent of india geography and 70 percent of india's population now apart from this the sixth point important in the article is basically with respect to strategic petroleum reserves now understand this strategic petroleum reserves which will have a capacity of 5.33 million tons has been developed and government of indus proposed to develop another 6.5 million tons worth of strategic
petroleum results in the coming days presently we have a strategic petroleum resource at padu mangalur and vishakapatnam and new strategic petroleum bridges are being developed at so these are the six very important points mentioned in this particular article now based on this i've given a question here consider the following statements strategic petroleum reserves have been built at padu vishakhapatnam and mangalore correct gas based energy accounts for over third of energy mix this particular statement is wrong it is just over six percent now by 2030 we want to increase it to 15 and government of india stated that we want to make india a gas based economy so based on this the right option is option a only one is true the next article is with respect to imposition of non-tariff measures by government offend in the recent times now please understand this government of india under the concept of atma nirbhar bharath has been using a two-pronged strategy to promote domestic production and this article basically discusses these two strategies now under one strategy government of india is imposing certain non-tariff measures on imports and under the second one it is basically promoting domestic production by giving incentives under the concept of a production linked incentives now the article discusses the issue of a non-tariff measures which are imposed by government of india in the recent months government of india has imposed non-tariff measures on the imports such as television sets freezers refrigerators tires etc essentially government of india has been following two important methodologies in imposing non-tariff measures first one it is basically imposing certain quality control measures and second it has shifted some of the imports which were under free imports list to restricted imports list now what is the impact of this when any import is shifted or re-categorized like this especially under restricted imports list the importers are compulsively to take a license before they are allowed to import so these two strategies are being used by government of india in imposing certain non-tariff measures under imports so these are some of the important points mentioned in the article now at the end of it what is the outcome the article basically says that on one side government of india is giving incentive to the extent of six percent under production linked incentive scheme and on the other hand these particular imports are attracting additional duties up to 10 percent because government of india has identified them and is targeting these particular imports in essence when the good is manufactured in india it will have a 16 cost advantage compared to any import that is done because of these particular measures of government of india and this is expected to promote domestic manufacturing and also reduce the dependency on impulse so these are the points discussed in the article the next article is with respect to india and imposed from china very recently government of india has announced that it wants to reduce the reliance on imports coming from china first and foremost understand this india and china have a huge amount of a bilateral trade as you can see in this particular representation the total value of a bilateral trade for financial year 20 is 82 billion dollars but out of this the value of exports from india to china are somewhere around 17 billion dollars which essentially means the exposure from china to india essentially the indian imports are very very high and india has a huge amount of a trade deficit with china this is the first very important point second in the last couple of years again and again certain agreements have been signed between india and china under which india has been demanding higher market access for its exports in the chinese market but on the other hand the chinese exports into india have been increasing the same access is not being granted by the chinese authorities for india's exports third because of certain security dispute which has been happening in the recent times government of india very recently has been taking various steps or measures up to control the overtures of china fourth very important point government of india has basically identified 1068 products including 168 important products and it plans to reduce the imports of these particular products from china into india and for this government of it has basically stated that it has already identified other markets from which these imports can be done into india now there is a need to do the feasibility study next very important point discuss in the article india exports low value raw materials to china whereas imports key products such as auto parts consumer electronics electric machinery so on and so forth in simple terms india's dependence on imports from china is very very high in addition to this the article also mentions the recent initiative between india japan and australia to develop a supply chain system so these are certain very important points which are mentioned in this particular article one very important point that you need to make a note of is this in this particular representation you can see that the trade with china has been declining especially apart from this another very important point that you need to make a note of is this the trade deficit that india has with china has been declining in the last couple of years for example in the financial 18 it was 63 billion dollars and this has come down to 48.7 billion dollars in the financial aid 20. having said so another very important point that you need to make a note of is this the trade deficit of india with china and hong kong has been increasing and various experts have already stated that china is basically rooting its exports from hong kong into india and that is another very important point that you need to make a note of here so these are certain very important points related to this particular article and these are the important questions as well as articles for this particular time period thank you have a good day
2021-01-25 12:05
