RBI Announces Over USD 21 Billion Liquidity Infusion to Support Growth

 RBI Announces Over USD 21 Billion Liquidity Infusion to Support Growth

An agreement has been signed between the India Semiconductor Mission (ISM), Tata Electronics Private Limited (TEPL), and Tata Semiconductor Manufacturing Private Limited (TSMPL). This is viewed as a significant step towards the implementation of the ₹91,000 Crore semiconductor project, which will have a production capacity of 50,000 wafer starts per month (WSPM).

The Government of India, through the India Semiconductor Mission, has committed to providing 50% fiscal support on a pari-passu basis (equal footing) under the Semicon India Programme. The India Semiconductor Mission operates as a specialized and independent business division within Digital India Corporation.

About the SemiconIndia Programme

• Objective: To provide financial support to companies investing in the semiconductor, display manufacturing, and design ecosystem.
• Financial Outlay: ₹76,000 Crore.

Schemes under the Program:

• Modified Scheme for Setting Up Semiconductor Fabs in India
• Modified Scheme for Setting Up Display Fabs in India
• Modified Scheme for Setting Up Compound Semiconductors/Silicon Photonics/Sensors Fabs, Discrete Semiconductors Fabs, and Semiconductor Assembly, Testing, Marking, and Packaging (ATMP)/OSAT Facilities in India
• Design Linked Incentive (DLI) Scheme

This initiative also includes two Open Market Operations (OMOs): the purchase of Government Securities (G-Secs) and USD/INR Buy/Sell Swap Auctions.

About Open Market Operations (OMO)

OMO involves the RBI buying or selling G-Secs in the open market to influence money supply and interest rates. When the RBI purchases G-Secs, it increases high-powered money (H), while selling G-Secs reduces it by the same amount. High-powered money is the sum of commercial bank reserves and currency held by the public.

About USD/INR Swap Auctions

In this process, a bank sells US dollars to the RBI and agrees to buy the same amount of US dollars at the end of the swap period. The auction allows banks to quote swap rates (forward premiums or discounts), with the lowest bidder being accepted first.

Need for Liquidity Infusion

Since November 2024, the banking system has faced liquidity challenges due to factors like tax outflows, substantial foreign portfolio investor selling in Indian equities, and RBI intervention in the foreign exchange markets. Maintaining comfortable liquidity conditions is crucial for better loan rate transmission, policy implementation, and overall economic growth.

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