Benefits of the Swap Facility are Reduction in interest rates Controlled appreciation of rupee ...........

Economic and Social Issues Budgeting and Fiscal policy

15th Finance Commission’s Chairman NK Singh has pitched for an institutional mechanism like a ‘Fiscal Council’ to enforce fiscal rules and keep a check on the Centre's fiscal consolidation. According to International Monetary Fund (IMF), IFCs are now an indispensable part in the design of fiscal frameworks aimed at guiding fiscal policymakers’ discretion. An independent fiscal council can bring about much needed transparency and accountability in fiscal processes across the federal polity.Faster growth in nominal gross domestic product (GDP) usually leads to faster growth in tax collections. However, in India, tax buoyancy shows no stable pattern and hence, forecasting tax revenues is difficult.

Benefits of the Swap Facility are:

Reduction in interest rates
Controlled appreciation of rupee
Increase in Foreign Exchange Reserves
Rise in bond yields

Select the correct answer using the code given below.

i and ii only

i, ii and iii only

ii, iii and iv only

All of the above

None of these

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Explanation:

The benefits of Swap Facility are the following

Reduced interest by banks-with improved liquidity condition with the banks, especially after constrained balance sheets due to double financial repression. This will help customers with cheap loans for homes, cars etc.

Increase in RBI’s Foreign Exchange Reserves With Swap facility the auction will help boost it by another $5 billion to the current $400bn corpus. This further improves India’s capacity in dealing with hot money outflow and balance of payment crisis.

Controlled appreciation of Rupee- as there will be increased supply of Rupee. This will help Indian exporters.

Rise in bond yields- as there may be fewer Open Market Operations.