22.48 ndian onom
Debt sWAP Such funds, estimated to be sitting on a total
of $25 trillion, are eagerly looking to diversify into
Exchanging one debt by another for a fresh term
higher yielding riskier assets. Any fast growing
of repayment schedule at the same or usually
economy with open and liberal attitudes to foreign
lower interest rates.
investments with opportunities for investment
interest rAte sWAP may face up the inflow of such funds. India is one
fit candidate today.
Exchanging one debt of a particular interest rate
Such funds need to be studied and alllowed
for another at lower interest rate.
entry cautiously as they bring in non-market and
ProDuct sWAP extraneous factors with them too, having potential
diplomatic, strategic and sovereign dangers to the
Exchanging one product for the other as wheat for host economies. In November 2007, the National
milk (similar to barter). Security Advisor of India voiced apprehension
about such funds.
The Society for Worldwide Inter-bank swiss formulA
Telecommunication (SWIFT) is a messaging Tariff cut formulae are either linear or non-
network which connects banks and financial linear. A Swiss formula is a non-linear formula.
institutions across the world. International In a linear formula, tariffs are reduced by the same
transactions of the banks and institutions are percentage irrespective of how high the initial
ultimately based on this network. The network tariff is. As opposed to a linear formula, in a non-
was in news in India after the LoU (Letter of linear formula, tariff cuts are directly or inversely
Undertaking) related banking fraud occurred proportional to the initial tariff rate.
with the Punjab National Bank by February
In the Swiss formula, tariff cuts are
2018. Meanwhile, the RBI has enforced (February
proportionally higher for tariffs which are initially
2018) a new guideline under which all banks and
higher. For instance, a country which has an
financial institutions of India need to link their
initial tariff of 30 per cent on a product will have
core banking system to the SWIFT to protect
to undertake proportionally higher cuts than a
themselves from occurrence of any future financial
country which has an initial tariff of 20 per cent
on the same product.
In the on-going multilateral trade negotiations
at the World Trade Organisation (WTO), it has
Sovereign wealth funds (SWFs) are the foreign been decided by all participating countries to use
currency funds held by the governments of the the Swiss formula for reducing import tariffs on
world, specially in Asia and West Asia. After the industrial goods. After a long-standing debate
process of globalisation, freer capital movements on the number of reduction coefficients to be
to the developing economies had brought enough used in the formula, a unanimous decision was
foreign currencies to some economies. Earlier, such recently taken that there would be two sets of
funds used to originate in Singapore and Norway coefficients—one for the developed countries and
but now we see china, Russia, and the Middle East another for developing countries. A decision on
emerging as the new SWFs economies. the value of the coefficient is yet to be taken.