Topic: Indian Economy and issues relating to planning, mobilization, of resources, growth, development and employment.
6. Explain in what way using dollar swap line with other countries can help the Indian economy in uncertain times. (250 words)
Reference: Indian Express
Why this question:
India is working with the United States to secure a dollar swap line that would help in better management of its external account and provide extra cushion in the event of an abrupt outflow of funds, according to banking industry and government sources. Thus the question.
Key demand of the question:
Explain the utility and benefits of using a dollar swap line in the current conditions of the pandemic.
Explain – Clarify the topic by giving a detailed account as to how and why it occurred, or what is the particular context. You must be defining key terms where ever appropriate, and substantiate with relevant associated facts.
Structure of the answer:
Briefly explain what a dollar swap line is.
To start with explain that while India is largely expected to tide over any challenge posed by continued outflows of funds from the markets, a swap line with the US Federal Reserve provides additional comfort to the forex markets. Discuss how a swap facility works. Explain how a currency swap agreement acts as a tool for quantitative easing of the Indian economy.
Conclude with importance of it.