Business, Economy & Banking Current Affairs - 2020

Business, Economy and Banking in Current Affairs 2019 with latest news and current affairs in Agriculture, Industry, Banking, Capital Markets, Import and Export and Government schemes in commercial sector.

RBI to buy and sell Government Securities worth Rs 10,000 crores

On December 23, 2019, the Reserve Bank of India will buy and sell government securities of Rs 10,000 crores under a special Open Market Operation. Such moves are implemented by the federal bank in order to bring down the interest rates of long-term securities. This time RBI has named its move as “Operation Twist”.

There are different types of Government Securities issued by the Federal Bank.

Operation Twist

The buying of long-term bonds and selling of short-term bonds by RBI is called operation twist. When the long-term bonds are bought by RBI, their demand increases. This lowers long term yields. This way the yield curve gets twisted and hence the name “Operation Twist”. This has significant effect on the long term interest rated that govern the investment and growth in the economy.

Operation Twist is generally used by Central Banks when long term interest rates remain high in spite of lowering interest rates.

United States implemented the operation twice, in 1961 and 2011.

What is Open Market Operation?

It is a tool used by the RBI to smoothen liquidity conditions in the country. The main objective of OPO is to regulate money flow in the country. RBI operates the OMO through commercial banks and does not deal with the public directly.

Key Features of Government Securities

The Government Securities can be issued only by Governments at the Centre and State and also by Semi-Governmental authorities. The semi-Governmental Authorities are those authorized by the GoI.

When the RBI wants to increase money supply in the economy, it purchases government securities. It sells government securities when the need to suck out liquidity occurs.

Legislation of Government Securities

A Legal framework for issuance of government securities was provided by the Public Debt Act, 1944. It was replaced by the Government Securities Act, 2006. It oversees government securities and defines purpose of securities which is predominantly raising loans.

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India, ADB sign $490 Mn loan for PPP to upgrade Madhya Pradesh roads

The Asian Development Bank (ADB) and Government of India has signed a $490 million loan for public-private partnership (PPP) project for upgradation of about 1,600 km of state highways and major district roads (MDRs) from single-lane to two-lane widths, with road safety features and all-weather standards in state of Madhya Pradesh. An additional $286 million investment will be mobilised via private sector participation under PPP modality.

The state highways and major district roads provide a crucial link between rural roads and national highways, therefore, the upgradation of these roads under project will improve rural and peri-urban connectivity in state as well as improve access to markets and better services.

Key Highlights

The project continues ADB’s engagement with Madhya Pradesh’s road sector since 2002. Since 2002, ADB has provided state government with 5 loans to develop its road network, improving about 7,300 km of roads or about 11% of total network. This new project will further open a new partnership by introducing PPP via hybrid-annuity model (HAM), thereby leveraging government financing and improving sustainability of capital investments.

The project will also develop an e-maintenance system, which can record defects or required maintenance, along with a training program to develop capacity on contract implementation and project finance in Madhya Pradesh Road Development Corporation (MPRDC).

What is Hybrid-Annuity Model (HAM)?

It is a mix of engineering, procurement, construction (EPC) model and build-operate-transfer (BOT) model. This passes the responsibility of implementation, design, operation and maintenance obligations to private sector, while attracting some private sector financing. Under this model, government will release 60% of total project cost during construction, to be paid to concessionaire in portions linked to completion milestones. The remaining 40% is arranged by concessionaire in form of equity and commercial debt. Once the project is completed, government will repay concessionaire’s financial investment over a period of 10 years.

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