VOCABULARY BUILDING
Fill in the gaps in the sentences….
- When Biju Patnaik passed away, the whole of Odisha was ——— ——- ——-(Three words needed). Such mass ———- was —————-. Many thought that one of their elderly family members had passed away. The government declared seven days of ——-. Grief and a sense of loss was ——— ———— ——— (3 words) everyone’s face. Odia’s leaving ———— and those living in other parts of India were affected more than those inside the state. All were convinced that the loss was ——– . There were cases of suicide and many young people shaved off their heads to demonstrate their grief. India has produced so many great men and women, but no one’s departure had ———— such widespread sorrow. Only Gandhi’s assassination had ——— the nation and even the world in such sorrow. In every Oriya’s mind, Biju Patnaik has ———- his memory that even time can’t erase.
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Some suggested words…..Irreparable, Etched, Sparked, Inescapable, Palpable, Writ large on, Plunged, Drowned in sorrow, Mourning, Mourned, Downcast, Triggered, Experienced, Immortal, Grieving
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ANSWERS …
- When Biju Patnaik passed away, the whole of Odisha was drowned in sorrow. Such mass grieving was unprecedented. Many thought that one of their elderly family members had passed away. The government declared seven days of mourning. Grief and a sense of loss was writ large on everyone’s face. Odia’s living abroad and those living in other parts of India were affected more than those inside the state. All were convinced that the loss was irreparable. There were cases of suicide, and many young people shaved off their heads to demonstrate their grief. India has produced so many great men and women, but no one’s departure had triggered such widespread sorrow. Only Gandhi’s assassination had plunged the nation and even the world in such sorrow. In every Oriya’s mind, Biju Patnaik has etched his memory that even time can’t erase.
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Some suggested words…..Abroad, Irreparable, Etched, Sparked, Inescapable, Palpable, Writ large on, Plunged, Drowned in sorrow, Mourning, Mourned, Downcast, Triggered, Experienced, Immortal, Grieving,
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Hindu Editorial analysis.. (dated February, 24, 2025)
Editorial text,,,
Necessary infusion
The RBI’s long-term currency swap was likely forced by financial volatility
The Reserve Bank of India’s (RBI) recent decision to inject an additional $10 billion into the financial system through a dollar/rupee swap auction is a timely measure aimed at addressing long-term liquidity concerns among domestic lenders. These concerns stem from a flight of foreign capital from Indian stock markets, as investors seek better returns in the United States amid President Donald Trump’s proposed corporate tax cuts and ongoing tariff wars, which have strengthened the U.S. dollar against global currencies. This marks the second such rupee infusion in less than a month. However, unlike the first tranche of $5 billion on January 31, which had a six-month tenor, the latest swap auction has a three-year duration. The combined effect of these two auctions will inject approximately ₹1.3 trillion into the banking system, as lenders deposit their dollar reserves with the RBI in exchange for rupees at a pre-determined buyback premium. Currency swaps are among the tools central banks deploy during periods of high volatility in the global financial system. These measures have the primary aim of stabilising the local currency, mitigating liquidity constraints in the domestic financial system, and curbing inflationary pressures. Economists estimate that an additional $5 billion infusion may be necessary to neutralise the ₹1.7 trillion liquidity deficit in India’s banking system as of February 20, 2025.
This is the second time that the RBI has conducted a long-duration currency swap. The first was in 2019, in response to global financial volatility during Mr. Trump’s first term, amid trade tariff tensions and tax cuts. However, unlike 2019, when India’s foreign exchange reserves were rising, ensuring dollar availability while rupee liquidity remained constrained, today’s situation is more challenging. Between October 2024 and February 21, 2025, the rupee has depreciated approximately 3.3% against the dollar, breaching the 85 per dollar mark on December 19, 2024. Foreign portfolio investors and foreign institutional investors have also withdrawn roughly $31 billion from Indian equity markets. Since December 2024, the RBI has sold an estimated $111.2 billion (about 18% of its foreign exchange reserves) to stabilise the rupee. Given these conditions, the latest long-term currency swap appears to be a necessity rather than a proactive measure. Indian banks must capitalise on this liquidity infusion by continuing to extend credit, ensuring that the cycle of capital investment, employment generation, wage growth, and consumer demand remains intact. This, in turn, could help propel India’s real GDP growth beyond the current 6.4%, despite prevailing global economic headwinds.
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Explanation of Hindu’s Editorial dated February 24, 2025
NECCSARY INFUSION
Background note .. The Reserve Bank of India (RBI) is the central bank of the country. All banks in India come under its control. It is popularly known as the ‘Banker of Banks’. It hzas two major responsibilities. These are ….
- To keep the inflation under control
- To ensure that the exchange value (Or, the price) of the Rupee does not fluctuate wildly, either through sharp increases or through sharp falls.
To enable RBI to discharge its responsibilities properly, it has been given sweeping administrative powers. It’s an autonomous institution that may disregard the instructions of the government if it feels that government’s orders could harm the economy. It has controls over the borrowing of the central and state governments from the country’s banks or from sources outside the country. It decides the interest rates on deposits and loans of banks under its control. It can refuse to print notes to provide for government’s need for money. In a nutshell, RBI controls the Monetary Policies of the country whereas the elected government controls the Fiscal Policies.
Whenever the price of Rupee falls continuously, or rises relentlessly, RBI steps in with its corrective measures. RBI has many options available for it.
If the price of Rupee rises, the importers feel distressed because they have to part with more rupees to get their requirement of foreign currencies like the US Dollar. When the price of Rupee falls as is happening these days, exporters feel happy because they get more rupees for their foreign exchange (USD) earnings.
Rupee’s value in the international (its exchange rate) market fluctuates every minute of the day on a 24×7 basis. If the fluctuation is within limits, no one bothers. But, if it continuously rises or falls, danger bell starts ringing for the RBI.
Presently, the value of Rupee has been falling continuously. Its exchange rate against the American Dollar has crossed 87. This means, to get one USD, one has to deposit Rs. 87 in their bank or the foreign exchange dealers. In fact, Rupee’s value has decreased by about 3.8% in th last three months. This is both alarming and hurtful for the economy.
Normally, when Rupee’s value falls, it implies that too much rupee and too less dollars are available in the country’s currency market. To correct such imbalance, RBI comes forward with its dollar holdings (money bag of dollars) and sells it to whoever wants dollars. With such increased availability of Dollars, its value falls, and the price of Rupee increases. At least, Rupee’s further fall is arrested. Some stability in the exchange rate gets restored.
The opposite happens when the price of dollar falls and Rupee rises. In such a scenario, RBI offers to buy up dollars from the market, thus decreasing its availability. Consequently, Dollar price increases and Rupee price falls.
Normally, RBI does not like to intervene in such manner. It wants market forces to determine Rupee’s exchange rate. Only when the fluctuation becomes too high, the RBI steps in. In the present times, RBI has already tried this weapon.
The continuous slide in Rupee’s value has been due to a combination of factors, some internal, some others originating in the United States after Trump’s disruptive economic policies). Anyway, the surging value of the Dollar vis-à-vis Rupee has created other problems for India’s economy. One of them is ‘Liquidity crisis’
What is Liquidity Crisis?
Before we understand Liquidity Crisis, wemust understand how foreign invest,ent (money) comes in and goes out of India. Foreign investment comes in two ways.
1. Foreign Direct Invexstment (FDI) 2, Foreign Institutional Investment (FII)
What is FDI .. It is the investment foreign parties make to start factories, set-up businesses, develop infrastructure etc, So, FDI is necessarily long-term. It creates new jobs, boosts manufacturing and exports, adds to the frevenue earning of government. The investors bring in new technology, and bdetter management practices, to the country. When they begin to make profit, they repatrizate a part of it (repatriate) to their country of origin, and reinvest the rest in expanding their businesses here. Over all, FDI is considered to be welcome. The government goes out of its way to woo FDI sources to come here.
What is FII…. These are the investors who invest their money in the stock market to make some quick profits through trading in shares. Such investment is very volatile. An investor come in with, say, Rs.1000 crores today, and go back with the entire investment in a month or even less. They take back their money to invest in other stock markets in other countries. Such investors, no doubt, boost the share market activity, but they can and do inject a lot of anxiety among other investors. So, FII inflow is welcome, but its impact on economic growth is minimal.
What factors have contributed to RBI’s headache in recent weeks. … President Trump’s disruptive economic policies, especially his tariff enhancement threats, have created anxiety worlwide. India’s stock mzarket indices have fallen due to the adverse sentiments created by Trump’s policies. On the contrary, sentiments inside the U.S. have become positive as they feel thzat American economy will gdet a boost due to their president’s inigtiatives. The U.S. stock prices have risen boosting the US Dollar. As the Dollar rises, Rupee falls. This is one reason why Rupee is falling continuously.
Rise in U.S. stock prices have mzade investment there more lucrative for invexstors. This has prompted the FIIs to withdraw their investments from India, and take them to the U.S. When they leave, they take their mondey in Dollars, not in Rjupee form. Withdrawal of vast sums in Dollar form depletes the RBI’s dollar holdings. Once this hzappens, the availibility of dollar in Indian currency market falls. Conxsequently, dollar prices shoot up causing a fallin Rupee value.
There are a few internal factors thzat have put pressure on the RBI. It has to stabilize Rupee at any cost.
What RBI is contemplating to do.. One major step RBI has taken in the last few days is to go for a Currency Swap. Under this arrangement, RBI can ask different banks in India to give their dollar holdings to RBI for a certain period under a certain agreement. In return, RBI gives them rupees in exchange. Banks become flush with rupees which they can lend to their borrowers to set up new ventures or expand their existing ones. Thus, Currency Swap yields two types of benifits.
1. RBI’s Dollar holdings go up after the currency swap. So, it can offer it to needy parties who want to import items. For example, Indian Oil imports crude oil perkiodically. It has to make payments to the sellder in dollars. When it approaches for dollars (in millions), RBI can give the dollars to Indian Oil without any difficulty. Such ease of selling dollars to needy parties is possible when there is enough Liquidity in the currency market. In the same way, a large borrower can get its loan sanctioned and disbursed by its bank easily because the bank has enough rupees with it (obtained from RBI under the Currency Swap arrangement). Thus, the economy begins to enjoy the benefits of liquidity. If banks don’t have enough rupee reserves, they will frexstrict lending till their liquidity improves. They enforce Credit Squeeze (stopping furthder lending) till their liquidity impfroves.
2. When the RBI has enough dollars to sell, the price of Rupee stabilizes. Rupee’s exchange rate vis-a-vis the Dollar does not change much. This stabilizes the currency markdet and helps the economy to continue its growth.
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