Month: February 2022

Redemption of External Debt Outstanding of the Government of India 1.   The Government of India, Parliament, and the Reserve Bank of India need to work together to recognise the difference between the external debt converted to the Indian rupees at book value and the current rates. 2.   Table 1 reveals the external debt outstanding as on September 2021 taken from RBI bulletin. TABLE 1 * Source: Values extracted from Reserve Bank of India bulletin * Converted USD: INR @ 75. 3542 at 1:30 pm on 11/02/2022. Source: Financial Benchmarks India Pvt Ltd 3.  The Indian government owes Multilateral, Bilateral and IMF organizations a debt to the extent of USD 125.6 billion, that is, Rs 9,46,448 crores, which requires to be repaid on due dates. These are loans at concessional rates or otherwise. The Government of India needs to create an International Debt Redemption Fund 4.   The Government needs to be free of debt to any Multilateral and Bilateral institutions or the IMF. 5.   Parliament needs to decide that the Government of India needs to create an International Debt Redemption Fund. It can decide to allocate a nominal amount of Rs. 2500 Crores for this financial year 2022-23. 6.   One of the sources for the international debt redemption fund that can be decided by Government and Parliament is the annual surpluses from the Reserve Bank of India, entirely or a portion. 6.1. It is also clearly required to be stated that the profits of the Reserve Bank of India as determined annually is a surplus allocated to the Government of India. 6.2. For the next 10 years, it needs to be solely used for economic purposes as it is solely an earning from economic activity. 6.3. The Reserve Bank of India is in a position to share this and the Government can utilize it better. 7.   The liabilities of the Government of India clearly state as follows: TABLE 2 *Balance according to book value Source: Value extracted from statement of liability of Central Government from union budget India. 8.   The unnoticed contingent liability of Government of India. 8.1.  The Government of India does not “hedge its foreign currency borrowings in foreign currency”. 8.2.    As on the date say, 31st December 2021, the Government has “contingent liability of Rs. 4,77,413.48”. This is arrived explicitly in the Table 3 below. TABLE 3 9.  Parliament needs to examine the Pros & Cons of prematurely retiring sovereign foreign currency debt of India. Questions:    To what extent will the Reserve Bank of India and the Government of India with Parliament work together on the redemption of the Government’s Foreign Borrowings?     Is an early retirement or prepayment of the Government’s Bilateral, Multilateral and IMF loans appropriate for India, given the Foreign Exchange Reserves at Record levels?    Can the Government of India and the RBI enable current surpluses in the Global economy to create assets in India through the Financial System without risk?    If any nation in the world is condescending on India, the need for introspection is, do we need any loans or grants from any nation?    Is halting future sovereign loans a good policy? Henceforth, this needs to be a decision in principle. Remedies 10.    Parliament should address the contingent liability of the foreign exchange fluctuation risk. 10.1.  It should be expressly stated to the Parliament in budget papers or in the Committee, and the Reserve bank of India should confirm it in its monthly statement. 10.2.  The Reserve Bank of India and the Government of India should work together in narrowing these contingencies by introducing special measures. 11.     When the pre-payment is decided: 11.1.  It can be done by a Debt Swap equivalent in Rupees by issue of 364 days Treasury Bills. 11.2.  On exercise of this Swap, the Government can deposit it in foreign currency with State owned banks in India till it arranges to repatriate the money in consultation with lenders. 11.3.  All the lenders must agree to take back the loans before the due dates. 11.4.  The repayment of dues to the International Monetary Fund should be the first one initiated by the Central Government. 11.4.1.  The Reserve Bank of India is a contributory to the International Monetary Fund in its International Investments Program. 11.4.2.  The Government of India can easily repay this loan and need not rely on any borrowings of IMF under a managed Foreign Exchange Reserves Program by the Reserve Bank of India, which has been carried out in an accomplished manner. 11.4.3.  Indian citizens in India or internationally also need to be allowed to participate in international holdings in the form of capital account convertibility gradually developed in the next 10 years. 11.4.4.  This would be a great moment for India if the Parliament and Government with Reserve Bank of India decides that IMF borrowings to the extent of Rs 1,75,575 crores be repaid with immediate effect. 11.4.5.  This can be done with swap of Treasury Bills raised from the market and supported by the Reserve Bank of India in a short period. 11.5.   In the case of bilateral loans, these would have been taken for a long period of 20 or 30 years with durations of 20 or 30 or 40 years. It is time that these loans be repaid or provisions made for repayment in the ensuing months. 11.5.1.  Since bilateral arrangements have to be addressed diplomatically and arrangements need to be made by communications, Parliament can resolve that the bilateral loans can be prepaid. 11.5.2.  It would also be a grand moment if Parliament decides with Reserve Bank of India and Government that we are at a confident level that we do not request, ask or take any loan from a sovereign government for the purposes intended. 11.6.   In the case of multilateral loans, India need not resort to any loan from IBRD, ADB or World Bank or any other bank. It can rely on its own rupee sources and its savings. In order to achieve all of this, a conscious creation of an External Debt Redemption Fund will induce and motivate public finance actions as well as recognition of this debt by the public of India to bring in a spirit of sovereignty. 12.   The Government of India in forthcoming sessions of Parliament budget can create two funds –   Redemption of External Debt Fund   Defence Assets Acquisition in Foreign Currency Fund 13. Credits to these funds can be channeled through appropriate Budgetary mechanisms of the Central Government. One of the options is that Reserve Bank of India’s annual surplus can be a source of credit. 14.     The Government of India should halt all sovereign borrowings in foreign currency. India should become investors in Multilateral institutions. 15.   An internal debate in the Ministry of Finance needs to be initiated and if necessary, in the public domain, inviting public views. 16.   The Government of India can decide on merits and convey the decision in principle to Parliament and the Institutions and subject itself to scrutiny in the realm of public finance. 17.     The parliament Panel can convey to Government of India at the views of public. CONCLUSION •   The Reserve Bank of India and the Government should agree to swaps that enable RBI to hold securities equal to the rupee equivalent of Government Debts and the RBI can provide the needful forex to prepay loans. •  It is therefore wise to halt all sovereign borrowings in foreign currency – multilateral or bilateral. On the other hand, the current situation in India can contribute to global development of all nations as it is meant to be. • This will increase returns of capital in India and generate employment.

Creation of Strategic Petroleum Product Reserve – 20 percent Ethanol Blended India has a Strategic Reserve for Crude Oil. There is a need for having a Strategic Petroleum Product Reserve at Points and Proximity of Consumption in the Indian Union. An aggressive stance on blending ethanol with petroleum products can give rise to the new series of tactical investment, physical and working capital. Citizen’s participation will also be called for as it is in the interest of the consumer and the economy that vital fuels are always accessible. This demands a policy that these reserves are part of the locales, so that at any given time, the Products Reserve is sufficient to meet the requirements for 30 days and beyond. The possible locations can be: a)     Strategic Locations at Junctions of Indian Railways and NHAI b)     Rural Stations at a distance of 25 kms to 50 kms from cities and towns  c)     Proximity to producers – within 25 kms to 50 kms d)     Suitable for Blending, Stock and Flow with Ethanol 20 percent. e)   Blending with refined products needs to be separated from refineries with tanks, approved blending technology and ready delivery for routine sales as well as defined national or international calamities. f)      The total ” floating ” stock of blended products can be mandated to be available to all Marketing Companies.  g)  Marketing companies need to be offered pooled facilities at nominal national cost, where all Departments – Central and State Government Activities converge. h)     National Interest defined and mandatory connectivity to National Users  ·     Normal Conditions ·     Disruptions in commercial activities –  § notified and sudden refinery or logistics related mishaps § localised calamities  § national calamity related stoppages and shutdowns as determined by Authority Nodal National Agency For Example: o       Projects and Equipments Corporation Limited – Can be the National Agency and can be an Equity Partner with all other agencies as a Catalyst up to 26 percent of Equity. o       All Petroleum Marketing Companies with written agreements on supply and demand matching at respective locations. NHAI –        Needs to float a Subsidiary with commercial viability offering Right of Way and annexed facilities for tanks and pipelines and extended support to Highway Transport. Indian Railways # Needs to nominate an existing subsidiary like RITES or IRCTC or both that can use railway infrastructure in rural areas. # These facilities with strategic and tactical inputs also meet # Defence  # State Government nominated uses. International agencies and Government subsidiaries with interest in Petroleum sector can be invited based on their interest in the Indian markets if, –        they have expressed interest, as India is a dominant importer, –         they also have sovereign funds.    –       Example – Norway, Abu Dhabi, who can provide, Capital International Specialisation Innovation Systems Stakeholders Protecting their interests Safety of Capital Return on Investment Strategic interest Commercial Interests in finding neutral markets  Green Funds Agriculture and Employment Generating Agencies can be participating Example: Milk Unions Poultry organisations State Road Corporations Private Transporters who will value lower costs Indian Railways  PROMOTE –        Own Your Wagons –        Rakes For specific delivery points to long distance consumers.  For example, Kerala, North East, heavy consumption zones outside Major Cities.  METRICS –        One Month Equivalent to Stocks required in each District –        Two Months Equivalent for Defence and National Interests Stock and flow Principle This implies that the petroleum products stores remain fresh and regular commercial sales will be done from the same tank farm. The Base Stock – Diesel and Petrol Pooled Stock Working Notes  1.     There is a need to focus on the supply of products in proximity. 2.     In a market economy, producers will strive to reduce costs and maximise profits. They will not be “greedy” but work in “self-interest”. 3.     National interest has to be paid for by the Central Government and State Government.  4.     In the scenario described, both capital assets and running costs will be paid for by better efficiencies. 5.     Digital management to reduce costs. 6.     Public participation in Equity and Bonds where and when feasible for higher returns. 7.     50 percent utilisation concurrently for flow purposes will pay for the cost of the Product Reserves. 8.     There need not be heavy investment by the Central Government – participation can be restricted to 26 percent. 9.     State Governments will be benefited by infrastructure creations. 10.   Magisterial function in crisis will be with least disturbance to the public. 11.    Any world calamity can be resolved in 60 days with alternative supply. 12.    Public needs to be educated and participative not to waste petroleum products. 13.   Pollution needs to be penalised. 14.  Railway Rakes can be “floating” stocks and can be turned around at will, parking at midway points in loop lines or rural terminals.  15.  All Defence installations can have 8 point strategic storage surrounding the installation or camps and cantonments. Defence buying should specify compulsorily 20 percent blended under stringent quality specifications, which will in turn help civilian supply quality in surrounding areas. 16. Considering the Experience of SPPR – SPPR can be a minority but strategic equity partner at 26 to 35 percent with at least 35 entities to implement this nationally over next 5 years, with Mangalore as Headquarters due to convenience and congruence. Green Energy Promotion should be a win win win win win for the Indian economy