Q.1) What is RBI’s Forex Swap? What are its benefits? How it is different from other Open market operations?
To improve domestic liquidity conditions, the Reserve Bank of India has decided to conduct a long-term forex swap auction. A bank shall sell U.S. dollars to the RBI, in turn the RBI will pay rupees to the participating banks at the current spot rate.
- Increase liquidity in market: Indian financial markets have been undergoing liquidity problems since the IL&FS crisis. In addition to this, the demand for rupees is expected to spike in the coming weeks as a result of a huge spending towards the upcoming general elections. Swap Auction will increase the supply of rupees in the market.
- Boost foreign exchange reserve: The auction will help to boost RBI’s forex reserves by another $5 billion. The forex reserve is one tool which the RBI uses to intervene in the currency market at times of abnormal volatility.
- Improve credit: This auction is expected to improve fund availability with the banks and in turn moderate borrowing costs.
- Benefits Importer: The decline in forward premium (especially at the longer tenor) will lower dollar hedging cost for importers.
- Benefits banks: Banks which currently short on SLR (Statutory liquidity ratio) securities and cannot participate in OMOs. Dollar swap would help banks to improve their liquidity. Also, the cost of dollar swap is less than government securities.
Forex swaps and other types of foreign exchange operations are also open market operations. OMO is a direct instrument of monetary policy, because the instrument influences the money supply directly.
RBI uses Open Market Operations along with other monetary policy tools such as repo rate, cash reserve ratio and statutory liquidity ratio to adjust the quantum and price of money in the system.
Q.2) What is virtue ethics? What is Plato’s theory of virtue?
Virtue ethics are normative ethical theories which emphasize virtues of mind and character. Virtue ethicists discuss the nature and definition of virtues and other related problems.
Plato identifies four “cardinal virtues” that are necessary for a happy individual and that are necessary for a good society. These are wisdom, courage, moderation, and justice.
- Our reason thinks; when it does this well, it has wisdom.
- Our appetite desires; when it does this well, it has temperance (self-control, soberness).
- Our “high spirit” shows emotions (fear, anger, respect, etc.); when it does this well, it has courage.
- Justice consists of the proper interplay of the three parts of the soul. In the just person, reason controls the “high spirit” — and both control the appetite.
Q.3) Critically analyze the recommendations of the 14th Finance Commission. How it promotes cooperative federalism?
- It has ignored the Plan and non-Plan distinctions
- It increased the devolution to states to 42%. According to the Commission, the increased devolution of the divisible pool of taxes is a “compositional shift in transfers’’ – from grants to tax devolution
- In recommending an horizontal distribution, it has used broad parameters – population (1971), changes in population since then, income distance, forest cover and area, among others.
- It has recommended distribution of grants to States for local bodies using 2011 population data with weight of 90 percent and area with weight of 10 per cent
- Grants to States are divided into two
a) One, grant to duly constituted gram panchayats
b) Two, grant to duly constituted municipal bodies
6. And, it has divided grants into two parts
a) A basic grant, and a performance one for gram panchayats and municipal bodies
b) The ratio of basic to performance grant is 90:10 for panchayats; and 80:20 for municipalities
- The increased tax devolution benefits states by providing more autonomy in spending
- The removal of plan non plan distinction limits the scope for discretion in grants and also encourages fiscal prudence
- The commission also acknowledges the associated need for according of larger policy discretion to the units of the federation.
- It provides rebalancing of Union and States in economic and fiscal management through recognition of capacity and potential of various developmental models across the nation.
- The 14th Finance Commission also restructures resource sharing namely composition and discretionary aspects which is a marked improvement from previous finance commissions.
Q.4) Nationalism is a feeling of consciousness about race, language, history, culture, tradition, economics, politics and hopes and aspirations of the people. Discuss.
Nationalism is a modern idea witnessed across the world. It evolved in the background of dissolving of empires and rising consciousness of togetherness among people.Italy and Germany unified in the backdrop of national consciousness based on language and racial affinity. India unified against British colonialism.
Benefits of nationalism:
- People work towards development of the country as patriots
- It brings unity despite diversity
- It helps streamline the goals of a country and set priorities for governments
- Nationalism is a devil if it turns into jingoism
- Diversity is suppressed if narrow concept of nation prevails
- It may lead to protective and dangerous ideas like anti immigration, anti semitism
- Extreme nationalism is the root cause behind many wars fought in the world