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OPINION SEPTEMBER 01, 2023 | The Indian Eye 12

its currency seriously. The strength of with these requirements fully.
the US currency in the past year has Three, compared to major eco-
posed a challenge for many devel- nomic blocs like the Euro Zone and
oping nations, including India. Ac- China, which are currently working
cording to experts, this action might to internationalize their currencies
improve India’s trade with South for decades, Subhash Chandra Garg,
Asian nations like Bangladesh and former Finance and Economic Af-
Sri Lanka, which are also struggling fairs Secretary, notes that India has
with dollar shortages. Two, trading a considerably smaller economy. He
in INR may boost India’s trade with argues that “Indian exports would
countries under global sanctions. In end up getting lesser US Dollars for
the aftermath of the Russian inva- the same amount of goods exported
sion of Ukraine, Western nations than the US Dollars the exporter
implemented substantial trade sanc- would have got if it was denominat-
tions against Russia. In contrast, In- ed in the US Dollars.” Therefore, he
dia proactively explored avenues to emphasizes that any effort to make
augment its acquisition of crude oil the INR a global trade and settle-
from Russia. As a result, Russia has ment currency at this juncture would
now ascended to the position of In- be nothing short of a wild goose
dia’s principal oil supplier, supplant- chase.
ing traditional stakeholders such as For the rupee to become a sig-
Iraq, Saudi Arabia and the UAE. nificant global reserve currency, In-
With the implementation of the dia must offer the rest of the world
mechanism for rupee settlements in sizable amounts of safe, readily
international trade by the Reserve available, and convertible assets that
Bank of India (RBI) in July 2022, In- could be used as collateral in finan-
dian importers can make payments in cial markets. This would necessitate
rupee that will be transferred to a Spe- a significant change in India’s policy
cial Rupee Vostro Accounts (SRVA) direction. Promoting rupee invoices
of the respective bank of the desti- with different nations will be chal-
nation country, and Indian export- lenging in the current global environ-
ers will be paid from the balances in India’s defense supply chain, like many others around the world, ment of trade restrictions and geopo-
the designated Vostro accounts. The faces a range of vulnerabilities that has a direct impact on defense preparedness and litical rivalry. T. Rabi Sankar, the RBI
excess rupee balance in the Vostro Deputy Governor, has rightly point-
accounts can be used to manage ex- operational efficiency of its armed forces (File photo) ed out that if India wishes to become
port-import transactions and pay- a significant economic power, these
ments for projects and investments. transactions would be significant for meets this requirement partially, it risks associated with the internation-
Currently, Vostro accounts have the Indian economy, which is among is still a trade deficit country. In oth- alization of INR are inevitable.
been opened in Russia, Sri Lanka the top five economies in the world er words, India imports more goods Regardless, the move by the
and Mauritius. A rupee-dirham pay- today. The Economic Survey of 2023 than it exports. India’s share of glob- Indian government and the RBI to
ment system with Saudi Arabia and asserted that international trade in al commercial services exports was a encourage the use of the INR for
the UAE is expected to be started in INR would help in protecting it from mere 4.4 per cent in 2022. The low transactions in foreign trade is a sig-
August 2023. According to reports, volatility and reduce the cost of do- export market share decreases the nificant milestone for India. It might
more than 18 nations have expressed ing business. need for other nations to keep their increase the value of the INR, im-
interest in having their trade settle- Additionally, it would lessen currency. For the same reason, Rus- prove the competitiveness of Indian
ments in rupees, and talks are cur- the requirement to have foreign sia has been reluctant to conduct exports, and lessen India’s reliance
rently being held with the central exchange reserves. It would conse- INR trade with India. on the US currency. The truth is that
banks of Tajikistan, Cuba, Luxem- quently reduce the economy’s sus- Two, elimination of all capital the US dollar will continue to be the
bourg and Sudan. ceptibility to abrupt downturns and account restrictions is a sine qua non dominant currency for the foresee-
Adding momentum to the on- changes in capital flow. There will be for the rupee to become an interna- able future, but in a few decades, it’s
going debate, in March 2023, the more opportunities to use the rupee tional currency. The proposal for a possible that the US might gradually
Indian government launched the in foreign transactions as the Indian roadmap for full convertibility was begin to share power with other cur-
Foreign Trade Policy (FTP). The economy expands and its econom- initiated in 1997 with the formation rencies too, including the INR.
FTP promises to increase the coun- ic ties with other nations strength- of Committee on Capital Account
try’s share in the global supply chain en. Finally, the bargaining power of Convertibility (CAC) or Tarapore Sneha M. is a Research Analyst in the
in exports by promoting Cross Bor- Indian firms would increase as the Committee by the RBI. The 1997 South Asia Centre at Manohar Parri-
der Trade in Digital Economy and rupee’s utilization grows in impor- and 2006 Tarapore Committee find- kar Institute for Defense Studies and
creating E-Commerce Export Hubs tance, supporting the Indian econo- ings outlined a route with a few re- Analyses (MP-IDSA), New Delhi
(ECEHs) across the country. Most my and raising India’s standing and quirements to accomplish convert- Views expressed are of the author and
importantly, the policy enables ru- esteem abroad. ibility. These include having a gross do not necessarily reflect the views of
pee-based invoices for imports and While the above-mentioned are fiscal deficit of less than 3.5 per cent the Manohar Parrikar IDSA or of the
exports, and trade settlement using some of the conscious efforts made of GDP, an inflation rate of 3 per Government of India.
SRVA. The RBI made regulations by the Indian government, it is equal- cent to 5 per cent over three years,
permitting banking arrangements for ly important to examine the other an equivalent per capita income of The full version of this article first ap-
invoicing, payment and settlement of side of the coin too. developed nations, among others. peared in the Comments section of the
exports and imports in INR. One, the scale of the economy These suggestions are relevant even website (www.idsa.in) of Manohar Par-
The benefit of using the Indian is crucial for internationalizing the today. India has made economic rikar Institute for Defense Studies and
rupee more frequently in overseas INR. Although the Indian economy progress but still needs to comply Analyses, New Delhi on August 24, 2023

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