Bilateral talks to follow Finance Ministry approval
The Commerce Ministry has finalised a list of 23 countries with which India can trade in local currencies to save precious foreign exchange and strengthen the rupee.
The list includes oil exporting nations such as Angola, Algeria, Nigeria, Oman, Iran, Iraq, Venezuela, Qatar, Yemen and Saudi Arabia.
Commerce Minister Anand Sharma is likely to approve shortly the report on currency swap finalised by a task-force headed by Special Secretary Rajiv Kher following which it will be discussed with the Finance Ministry, a Commerce Ministry official told Business Line.
A currency swap arrangement for trade basically involves trading in local currencies where countries pay for exports and imports with domestic currencies at pre-determined exchange rates instead of trading in US dollars.
Other countries on the list include Russia, Japan, Singapore, Australia, Indonesia, South Korea, Malaysia, Mexico, South Africa and Thailand.
“The 23 countries have been identified based on how feasible a currency swap arrangement for exports and imports would be with each. Our emphasis has been on countries with which India has a sizeable trade deficit so that we end up saving foreign exchange,” the official said.
After the Finance Ministry’s approval, the Commerce Ministry will hold bilateral talks with the identified countries. “A currency swap deal will work only if it is a win-win for both countries. The trading partner should have sufficient trade and investment interest in India,” the official added.
A $10.7-billion depletion in India’s foreign exchange reserve in the first half of the current fiscal due to a decline in net capital inflows is a cause of concern for the Government as lower reserves weaken the rupee, which in turn drives out foreign investments. While the country’s current account deficit has narrowed to 3.1 per cent of GDP in the first half of the fiscal, compared to 4.5 per cent in the first half of the previous year, the Finance Ministry is keeping an eye on it. If India manages to trade in rupees even with a handful of countries, it will contribute significantly towards stabilising the country’s balance of payments (BoP) position. At present, India has a rupee trading account with Iran, which was put in place to bypass the sanctions of the US and the EU against the country for its alleged nuclear activities.
In the case of Iran, where payments for 45 per cent of the oil purchased from the country are made in rupees, its success was driven by strategic factors. However, for other countries, the success of this system has to be judged purely on economic terms.