India Current Affairs - 2020

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Cabinet approves Currency Swap Agreement with Japan

The Union Cabinet has approved India’s Currency Swap Agreement with Japan. The $75-billion bilateral currency swap arrangement is a milestone in mutual economic cooperation and special strategic and global partnership between two countries.

Currency Swap Agreements

A Currency swap agreement is a foreign exchange agreement between two parties to exchange a given amount of one currency for another and, after a specified period of time, to give back the original amounts swapped.

How Currency Swap Agreement can benefit India?

The currency swap agreement can be beneficial to India in the following ways:

  • The currency swap facilities make it easier for India to pay for its imports. This aids in addressing the challenge of depreciation.
  • Since the Currency swap agreement involves trading in local currencies. Countries pay for imports and exports through their own currencies rather than involving a third country currency.  This does away with the charges involved in multiple currency exchanges.
  • The currency swap makes it easier to improve liquidity conditions.
  • Currency swap agreements help in saving for a rainy day when the economy is not looking in good shape.
  • The swap agreements also contribute towards stabilising the country’s balance of payments (BoP) position.
  • The agreement aids in improving the confidence in the Indian market.
  • Together with ensuring that the agreed amount of capital is available to India, it also brings down the cost of capital for Indian entities while accessing the foreign capital market.

The Currency Swap Agreement was concluded between Prime Minister Narendra Modi and Japan’s Prime Minister Shinzo Abe during the summit level meeting at Yamanashi, Japan.

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Global Economic Prospects report 2019- Key Facts

The World Bank has released the Global Economic Prospects report 2019 titled “Darkening Skies”. The key findings of the report are:

  • Growth among advanced economies is expected to drop to 2 per cent this year.
  • Slowing external demand, rising borrowing costs and persistent policy uncertainties may weigh on the outlook for Emerging Market and Developing Economies (EMDE). As result growth rates of this group are anticipated to hold steady at a weaker-than-expected 4.2 per cent this year.
  • South Asia is expected to grow at 7.1 per cent in 2019 driven by strengthening investment and robust consumption. Much of the contribution would come from India.
  • The growth rate of Pakistan is anticipated to slow to 3.7 per cent in 2018-19 as financial conditions tighten in the face of rising inflation and external vulnerabilities.
  • Bangladesh is expected to register a growth of 7 per cent in 2018-19, Sri Lanka is expected to speed up slightly to 4 per cent in 2019, and Nepal’s growth is expected to slow to 5.9 per cent in FY 2018-19.
  • The report warns that if a trade war between the US and China leads to a global slowdown, the spillover effects on the emerging market and developing economies (EMDEs) could be profound.
  • The report underlines the importance of “rebuild policy buffers” for EMDEs while underscoring the need of laying a stronger foundation for future growth by boosting human capital, promoting trade integration, and addressing the challenges associated with informality.
  • The global growth rates are moderating as the recovery in trade and manufacturing activity loses steam.
  • Trade tensions among major economies combined with concerns about softening global growth prospects, have weighed on investor sentiment and contributed to declines in global equity prices.
  • The report states that Growth in the US will continue to be supported by fiscal stimulus. As a result, there would be larger and more persistent fiscal deficits.
  • Even though the probability of a recession in the United States is still low and the slowdown in China is projected to be gradual, markedly weaker-than-expected activity in the world’s two largest economies will have a severe impact on global economic prospects.
  • The report warns that sharper-than-expected tightening of global financing conditions, or a renewed rapid appreciation of the US dollar, could exert further downward pressure on activity in EMDEs, due to large current account deficits financed by portfolio and bank flows.
  • The report estimates that if all tariffs under consideration were implemented, they would affect about 5% of global trade flows and could dampen growth in the economies involved, leading to negative global spillovers.

The World Bank has warned that the projected gradual deceleration of global economic activity over the forecast horizon could be more severe than expected because of the predominance of substantial downside risks.

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