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16th June – Editorials/Opinions Analyses

Contents

  1. India’s first gas exchange
  2. Evolving geopolitical dynamic after COVID-19
  3. The importance of forex reserves for RBI, economy

INDIA’S FIRST GAS EXCHANGE

Focus: GS-III Indian Economy

Introduction

  • India’s first gas exchange — the Indian Gas Exchange (IGX) is a digital trading platform that will allow buyers and sellers of natural gas to trade both in the spot market and in the forward market for imported natural gas across three hubs.
  • The exchange is expected to facilitate transparent price discovery in natural gas, and facilitate the growth of the share of natural gas in India’s energy basket.

How will this exchange work?

  • The IGX is a digital trading platform that will allow buyers and sellers of natural gas to trade both in the spot market and in the forward market for imported natural gas across three hubs —Dahej and Hazira in Gujarat, and Kakinada in Andhra Pradesh.
  • Imported Liquified Natural Gas (LNG) will be regassified and sold to buyers through the exchange, removing the requirement for buyers and sellers to find each other.
  • This will mean that buyers do not have to contact multiple dealers to ensure they find a fair price.
  • The exchange also allows much shorter contracts which will allow buyers and sellers greater flexibility.

Will domestically-produced natural gas also be bought and sold on the exchange?

No. The price of domestically produced natural gas is decided by the government. It will not be sold on the gas exchange.

Will this make India more import dependent?

  • Domestic production of gas has been falling over the past two fiscal years 2018, 19 as current sources of natural gas have become less productive.
  • Domestically produced natural gas currently accounts for less than half the country’s natural gas consumption; imported LNG accounts for the other half.

What regulatory change is required?

  • Currently, the pipeline infrastructure necessary for the transportation of natural gas is controlled by the companies that own the network.
  • Experts have also called for natural gas to be included in the Goods and Services Tax (GST) regime to avoid buyers having to deal with different levies such as VAT across states, when purchasing natural gas from the exchange.

-Source: Indian Express


EVOLVING GEOPOLITICAL DYNAMIC AFTER COVID-19

Focus: GS-II International Relations

Why in news?

  • An Inter-Parliamentary Alliance of eight democracies, including the US, Germany, the UK, Japan, Australia, Canada, Sweden and Norway, was set up to “construct appropriate and coordinated responses, and to help craft a proactive and strategic approach on issues related to the People’s Republic of China”.
  • Arguing that China’s economic rise has put the global, rules-based order under tremendous pressure, and that standing up to Beijing alone involves great cost for nations, this group is calling upon democratic countries “to unite in a common defence of our shared values”.

Evidences of evolving rejig: Democracy to the centre stage

  • Democratic values are becoming an integral part of this global order rejig.
  • The UK is also reportedly seeking an alliance of ten democracies, the G-7 countries along with India, Australia and South Korea to create alternative suppliers of 5G equipment and other technologies, so as to get out of the clutches of Chinese dependence.
  • The U.S. President postponed the G-7 summit with the caveat that he would be expanding the list of invitees to include Australia, Russia, South Korea and India.
  • The time for debates has ended and we are witnessing an attempt by major powers to seriously grapple with the challenge of building new platforms and institutions at a time of serious fragmentation in the global institutional matrix.
  • This fragmentation has allowed the issue of democracy to come front and centre.

Democratic values have emerged as crucial variables in the way Indian foreign policy trajectory has evolved in the recent years.

Click Here to read more about the 5G club proposal by U.K. (4th Article)

Click Here to read more about the G7

-Source: Times of India


THE IMPORTANCE OF FOREX RESERVES FOR RBI, ECONOMY

Focus: GS-III Indian Economy

Why in news?

India’s forex reserves recently crossed the $500-billion mark for the first time in history due to higher foreign direct investment, foreign institutional investment. Low oil prices also helped reduce outflows.

What are forex (foreign exchange) reserves?

  • Forex or foreign exchange reserves are essentially assets held by the central bank in foreign currencies as a reserve.
  • They are usually used for backing the exchange rate and influencing monetary policy.
  • In the case of India, our forex reserves include dollars, gold, and the International Monetary Fund’s quota for Special Drawing Rights.
  • Most of the reserves are usually held in US dollars given the currency’s importance in the international trading and financial system.

Why are the reserves so important?

  • All international transactions are settled in US dollars and are therefore needed to support our imports.
  • More importantly, they are needed to support, maintain confidence for central bank action, whether monetary policy action or any exchange rate intervention to support the domestic currency.
  • It also helps limit any vulnerability because of a sudden disruption in foreign capital flows, which could happen during a crisis.
  • Holding liquid forex thus provides a cushion against such effects and gives the confidence that there would still be enough forex to support the country’s crucial imports in case of external shocks.

Have other nations also seen an increase in reserves?

  • Countries witness significant cash outflows during an economic crisis, resulting in a reduction in dollar reserves.
  • This causes a devaluation of domestic currencies forcing central banks to deploy reserves to support their currencies.

How did India increase its reserves amid crisis?

  • The increase in India’s reserves is an outcome of an increase in FDI.
  • This comes along with FIIs pouring money into markets expressing confidence in the economy.
  • The increase in FDI, however, is primarily an outcome of the successful capital raise by Reliance Industries’ Jio Platforms amidst this global pandemic.
  • Another reason is that a slowdown means lower domestic consumption, which implies lower imports.
  • This coincides with low crude oil prices which further help on the current account front.

Does this mean India’s economy is healthy?

  • The increase in reserves does give India adequate cushion to combat external shocks.
  • India is one of the few nations whose forex reserves are more than forex debt.
  • The increase in FDI signals faith in the future of the economy, rather than a commentary on its present state.
  • Lower imports are a result of lower domestic demand, but currently, it is due to the lockdown too.
  • It is, therefore, difficult to consider the increase in reserves as a direct sign of a healthy economy.

-Source: Livemint

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