What’s in Today’s Article?

• USD-INR swap auction Latest News
• Dollar/rupee buy-sell swap auction
• RBI’s USD-INR Buy/Sell Swap Auction for Liquidity Management
• USD-INR swap auction FAQs

USD-INR Swap Auction Latest News

• The Reserve Bank of India (RBI) will conduct its largest-ever $10-billion dollar/rupee buy-sell swap auction, aiming to address the persistent liquidity deficit in the banking system.

Dollar/Rupee Buy-Sell Swap Auction

• A Dollar/Rupee Buy-Sell Swap Auction is a foreign exchange (forex) instrument used by the Reserve Bank of India (RBI) to manage liquidity in the financial system. 
• In this mechanism, RBI buys U.S. Dollars from banks in exchange for Rupees (first leg) and agrees to sell them back at a pre-determined future date along with a premium (reverse leg).

Need for Swap Auctions

• Liquidity Management: Helps inject or absorb Rupee liquidity in the banking system.
• Exchange Rate Stability: Reduces volatility in the USD/INR exchange rate by providing liquidity buffers.
• Foreign Exchange Reserves Management: Enhances the efficient utilization of forex reserves.
• Inflation & Interest Rate Control: Manages liquidity, indirectly influencing inflation and interest rates.

Advantages

• Enhances Market Liquidity: Provides long-term liquidity to banks, supporting credit flow.
• Stabilizes the Rupee: Helps mitigate pressure on the Rupee during periods of forex outflows.
• Predictable Cash Flows for Banks: Assists banks in managing forex positions and liquidity planning.
• Prevents Excessive Volatility: Helps smoothen currency fluctuations, boosting investor confidence.

Challenges

• Impact on Forex Reserves: Large-scale swaps can affect RBI’s forex reserves.
• Dependence on External Factors: Effectiveness depends on global market conditions, capital flows, and interest rate differentials.
• Market Reaction Uncertainty: If not executed strategically, it may lead to unintended currency speculation.
• Limited Long-Term Solution: Provides only a temporary fix for liquidity issues; structural reforms may still be needed.

RBI’s USD-INR Buy/Sell Swap Auction for Liquidity Management

• To address the system’s durable liquidity needs, the Reserve Bank of India (RBI) will conduct a USD-INR Buy/Sell swap auction worth $10 billion for a three-year tenor on February 28, 2025. 
• The spot settlement date is March 4, 2025, while the far-leg settlement date is March 6, 2028.
• This swap auction will provide short-term stability to the Rupee, helping mitigate volatility caused by foreign fund outflows. 
• The USD-INR spot rate may move towards 86.30.

Swap Mechanism

• In the first leg, participating banks will sell USD to the RBI at the FBIL Reference Rate and receive equivalent Rupee liquidity in their current accounts.
  • The FBIL Reference Rate is a benchmark rate for currency pairs, such as the Indian rupee (INR) against the US dollar (USD), euro (EUR), pound sterling (GBP), and Japanese yen (JPY). 
  • FBIL stands for Financial Benchmarks India Private Limited.
• In the reverse leg, banks will repurchase USD from the RBI by returning the Rupee funds along with the agreed swap premium.
• This strategic move by the RBI aims to enhance liquidity, stabilize the Rupee, and maintain exchange rate stability.

USD-INR Swap Auction FAQs

Q1. What is the objective of the dollar-rupee swap arrangement implemented by the RBI?

Ans. RBI aims to manage liquidity, stabilize the Rupee, and reduce forex market volatility through USD-INR swap arrangements.

Q2. What is a buy-sell swap?

Ans. In a buy-sell swap, RBI buys USD from banks and agrees to sell it back later at a pre-fixed exchange rate.

Q3. Why does RBI sell dollars when the Rupee depreciates?

Ans. RBI sells dollars to increase USD supply, support the Rupee, and curb excessive volatility in the forex market.

Q4. What is the concept of a currency swap?

Ans. A currency swap is an agreement to exchange currencies at a set rate, often used to manage liquidity and forex reserves.

Q5. What happens if the Rupee weakens against the Dollar?

Ans. A weaker Rupee makes imports costlier, increases inflation, and may lead to RBI interventions to stabilize the currency.

Source: TH | BS | BT

What’s in Today’s Article?

• India-Qatar LNG trade Latest News
• LNG: The Energy Driving India-Qatar Trade
• Growth in India’s LNG Imports and Qatar’s Expanding Export Capacity
• The US Factor in India’s LNG Market
• Conclusion: Energy as a Core Pillar
• India-Qatar LNG trade FAQs

India-Qatar LNG trade Latest News

• India-Qatar trade is primarily driven by India's liquefied natural gas (LNG) imports, with Qatar being its largest supplier. As both nations seek to double bilateral trade in the next five years, LNG is expected to remain a key factor in achieving this goal.
• During the recent visit of Qatar’s Amir Sheikh Tamim bin Hamad Al-Thani, India and Qatar set a goal to double bilateral trade to $28 billion annually by 2030 and upgraded their ties to a strategic partnership.

LNG: The Energy Driving India-Qatar Trade

• India’s LNG imports are set to rise over the next five years due to increasing natural gas consumption. 
• This aligns with Qatar’s plans to expand its LNG export capacity, making it a key supplier alongside the US. 
• Indian oil and gas companies are exploring both markets to meet growing demand.

Trade Imbalance in Qatar’s Favor

• Despite India’s efforts to boost exports and attract Qatari investments, the trade balance remains heavily tilted towards Qatar. 
• LNG is the largest component of India’s imports from Qatar, contributing 50% of total imports, which stood at $11.49 billion in the first 11 months of 2024. 
• Other major imports include LPG, crude oil, plastics, and petrochemicals, while India’s exports to Qatar were only $1.61 billion during the same period.

Qatar’s Dominance in India’s LNG Imports

• From January to November 2024, India imported 9.82 million tonnes of LNG from Qatar, making up 38.8% of India’s total LNG imports by volume. 
• In value terms, Qatar accounted for 41.2% of India’s LNG imports, worth $5.75 billion.

Long-Term LNG Contracts and Future Supply

• India’s largest LNG importer, Petronet LNG, has a long-term contract with Qatar for 7.5 million tonnes per annum (mtpa) of LNG, recently extended until 2048. 
• In addition to these contracted volumes, Qatar also plays a significant role in India’s spot LNG market. 
• In December 2024, GAIL signed a five-year agreement with QatarEnergy for additional LNG supplies, further strengthening the energy partnership between the two nations.

Growth in India’s LNG Imports and Qatar’s Expanding Export Capacity

• India aims to increase natural gas’s share in its primary energy mix from just over 6% to 15% by 2030. 
• According to the International Energy Agency (IEA), India’s natural gas consumption is expected to grow nearly 60% from 2023 levels, reaching 103 billion cubic metres (bcm) by 2030.
• With domestic production meeting only half of the country’s demand, LNG imports are set to rise significantly in the coming years.

India’s Expanding Role in Global LNG Markets

• Between 2013 and 2023, India’s LNG imports grew by 70%, reaching 36 bcm in 2024, reinforcing its position as the world’s fourth-largest LNG importer. 
• The IEA projects India’s LNG demand to grow at an annual rate of 11% until 2030, prompting Indian oil and gas companies to secure long-term supply contracts. 
• Recently, Indian Oil Corporation (IOC), Bharat Petroleum Corporation (BPCL), and Gujarat State Petroleum Corporation (GSPC) signed major LNG import agreements with global energy firms.

Qatar’s Expanding LNG Export Capacity

• As India’s LNG imports surge, Qatar is set to almost double its liquefaction capacity from 77 mtpa to 142 mtpa by 2027. 
• This expansion could further solidify Qatar’s position as India’s leading LNG supplier, ensuring long-term energy security for both nations.

The US Factor in India’s LNG Market

• The United States, the world’s largest LNG exporter, is emerging as Qatar’s biggest competitor in India’s LNG market. 
• In January-November 2024, India imported 5.12 million tonnes of LNG from the US, accounting for 20.2% of total LNG imports, valued at nearly $2.5 billion.

US-India Energy Partnership

• New Delhi and Washington have agreed to enhance US energy exports to India, aiming to position the US as a leading supplier of oil and gas. 
• This initiative could also help reduce the trade deficit between the two nations.

US LNG Export Policy and India’s Interest

• With US President Donald Trump lifting the Biden-era ban on new LNG export permits, Washington is expected to strengthen its dominance in the global LNG market. 
• Indian oil and gas companies are actively exploring long-term LNG contracts with US suppliers.

Conclusion: Energy as a Core Pillar

• Energy remains a central aspect of India-Qatar relations. 
• Both nations are exploring ways to strengthen and expand their energy partnership, including potential mutual investments, as highlighted in the recent discussions between PM Modi and Al-Thani.

India-Qatar LNG Trade FAQs

Q1. What is LNG used for?

Ans. LNG is primarily used for power generation, industrial applications, and as a cleaner fuel alternative for transportation.

Q2. What is the difference between LNG and LPG?

Ans. LNG is liquefied natural gas, mainly methane, while LPG (liquefied petroleum gas) contains propane and butane, used for cooking and heating.

Q3. Is LNG better than CNG?

Ans. LNG is more energy-dense and better for long-distance transport, while CNG is more suited for short-range vehicle use.

Q4. What does Qatar export to India?

Ans. Qatar exports LNG, LPG, crude oil, petrochemicals, plastics, fertilizers, and aluminum to India.

Q5. What does Qatar buy from India?

Ans. Qatar imports food products, engineering goods, machinery, textiles, chemicals, and pharmaceuticals from India.

Source: IE | DH

What’s in Today’s Article?

• Public Expenditure Latest News
• Introduction
• About Quality of Public Expenditure (QPE) Index
• How India Improved the Quality of Its Public Expenditure
• Challenges to Maintaining High-Quality Public Expenditure
• Key Findings from RBI’s QPE Index Analysis
• Future Outlook: Strengthening India’s Public Expenditure Strategy
• Conclusion
• India’s Quality of Public Expenditure FAQs

Public Expenditure Latest News

• The RBI has used data since 1991 to create the 'Quality of Public Expenditure' index to assess how well the government is spending its money.

Introduction

• Government expenditure plays a critical role in shaping economic growth, infrastructure, and public welfare.
• In India, the Reserve Bank of India (RBI) has developed a Quality of Public Expenditure (QPE) Index to analyse how efficiently both the Centre and states utilize public funds.
• The latest RBI report suggests that India's quality of public expenditure is at its highest level since economic liberalization in 1991.
• This improvement is attributed to higher capital spending, fiscal discipline, and better allocation of resources.

About Quality of Public Expenditure (QPE) Index

• The Quality of Public Expenditure Index is a framework created by the RBI to measure how effectively government funds are spent.
• Instead of just looking at the total expenditure, the index evaluates the composition of spending and its impact on long-term economic growth.
• Key Indicators of the QPE Index:
  • Capital Outlay to GDP Ratio – Measures the proportion of government spending on infrastructure and development projects relative to GDP. A higher ratio indicates better quality expenditure.
  • Revenue Expenditure to Capital Outlay Ratio – Assesses the balance between day-to-day operational expenses and long-term investment. A lower ratio is preferred, as excessive revenue expenditure weakens fiscal sustainability.
  • Development Expenditure to GDP Ratio – Tracks public spending in healthcare, education, research, infrastructure, and social welfare. Higher investment in these sectors improves human capital and economic productivity.
  • Development Expenditure as a Percentage of Total Expenditure – Evaluates the share of productive investments in overall government spending. The higher the proportion, the better.
  • Interest Payments to Total Government Expenditure Ratio – Reflects the burden of government debt. A lower percentage indicates better fiscal management and reduced reliance on borrowed funds.

How India Improved the Quality of Its Public Expenditure

• Shift Toward Capital Expenditure
  • Over the past two decades, India has prioritized capital investment over revenue expenditure.
  • Unlike routine administrative costs, capital expenditure funds infrastructure, roads, energy, and digital connectivity, boosting long-term economic growth.
• Implementation of the Fiscal Responsibility and Budget Management (FRBM) Act
  • To control government borrowing, India introduced the FRBM Act in 2003, limiting the fiscal deficit to 3% of GDP.
  • This move ensured that borrowing was primarily used for capital projects rather than operational expenses.
• Managing Fiscal Deficit and Debt Levels
  • Instead of focusing solely on the annual fiscal deficit, India has shifted towards managing overall debt levels as a percentage of GDP. This approach helps maintain long-term fiscal sustainability while allowing flexibility in economic crises.
• Rising Development Expenditure
  • The government has increased investment in education, healthcare, and social programs, improving human capital development and economic productivity.
• Reduction in Interest Payment Burden
  • With better debt management and controlled borrowing, India has reduced its interest payment burden, ensuring more funds are allocated to productive sectors.

Challenges to Maintaining High-Quality Public Expenditure

• Despite these improvements, some challenges remain:
  • Crisis-Driven Fiscal Stimulus – Events like the 2008 Global Financial Crisis and COVID-19 lockdowns forced the government to increase spending beyond fiscal limits, impacting expenditure quality.
  • Political Pressures for Loan Waivers and Freebies – Increasing populist measures like loan waivers, direct cash transfers, and free electricity schemes put pressure on government finances.
  • Balancing Revenue and Capital Expenditure – While capital investment has grown, revenue expenditure on salaries, subsidies, and interest payments remains high, reducing fiscal flexibility.

Key Findings from RBI’s QPE Index Analysis

• The RBI study divided India’s fiscal performance since 1991 into six phases, each shaped by economic policies and global events:
  • 1991-2003 – Fiscal consolidation took priority, reducing public investment in infrastructure.
  • 2003-2008 – Fiscal discipline and economic growth boosted capital spending and state revenues improved.
  • 2008-2013 – The Global Financial Crisis (GFC) led to countercyclical spending, increasing deficits but supporting economic recovery.
  • 2013-2017 – The 14th Finance Commission gave states more fiscal autonomy, improving state-level development expenditure.
  • 2017-2020 – Introduction of GST led to initial revenue challenges for the Centre, while states benefited from higher tax shares.
  • 2020-Present – Post-COVID recovery, driven by record-high capital expenditure, has helped improve public expenditure quality.

Future Outlook: Strengthening India’s Public Expenditure Strategy

• Sustaining Capital Expenditure Growth – Continued investment in infrastructure, renewable energy, and digital transformation.
• Balancing Welfare and Development Spending – Ensuring social schemes do not outweigh productive investments.
• Enhancing Fiscal Federalism – Strengthening Centre-state financial coordination for balanced economic development.
• Maintaining Fiscal Discipline – Keeping borrowing under control while ensuring growth-oriented public spending.
• Strengthening Transparency and Monitoring – Using data-driven governance models to track expenditure efficiency.

Conclusion

• India has made significant progress in improving the quality of public expenditure, with the RBI’s QPE Index showing its best performance since 1991.
• A focus on capital investment, fiscal discipline, and effective debt management has enhanced economic growth and public welfare.
• However, political populism and fiscal pressures remain key challenges.
• To sustain these gains, policy continuity, efficient resource allocation, and financial discipline will be crucial in the years ahead.

India’s Quality of Public Expenditure FAQs

Q1. What is the Quality of Public Expenditure (QPE) Index?

Ans. The QPE Index is an RBI-developed tool to assess the effectiveness of government spending in India.

Q2. What are the key factors considered in the QPE Index?

Ans. It evaluates capital investment, development expenditure, revenue-to-capital ratio, and interest payment burden.

Q3. How has India improved the quality of public expenditure?

Ans. India has increased capital spending, controlled fiscal deficits, and focused on infrastructure and social development.

Q4. What challenges impact public expenditure quality in India?

Ans. Crisis-driven spending, political populism, and high revenue expenditure affect fiscal sustainability.

Q5. What is the role of the FRBM Act in improving expenditure quality?

Ans. The FRBM Act limits fiscal deficit and encourages borrowing for development, ensuring better financial discipline.

Source: IE