Frequent depreciation and fluctuations of Indian Rupee against US Dollar is a cause for concern as such depreciation / volatility impacts Indian economy at large going down up to the level of a common man. The impact becomes apparent on different economic folds by putting economic pressure on government finances, certain sections of companies and directly / indirectly passed on to end consumers, i.e., public at large.
Central government has been constantly working in tandem with the Reserve Bank of India (RBI) to strengthen position of Indian Rupee at international level against US Dollar and other currencies by making interventions from time to time.
Besides, first step of this giant leap effort took place on July 11, 2022 with an announcement of setting up and developing mechanism to settle global trade in Indian Rupees.
This announcement opened the windows for Indian companies and organizations to mark and perform their global trade (export or import) with Indian Rupee as a mode of payment. Accordingly, authorized Indian banks in order to facilitate and process such transactions were required to open Special Rupee Vostro Accounts of correspondent banks of the partner trading country.
Russia-Ukraine war is one of the factors that turned the position of Indian Rupee against US Dollar along with the global trade upside down. At the same time, it is trading of oil deal with Russia by India in Indian Rupees that boosted the prospect of using Indian Rupee as a global trading currency. One concern looming over the necks of the Indian banks is that probable economic sanctions by western countries on them for trading with Russian entities in Indian Rupees.
Following Russia, some other countries seem to be receptive to undertake global trade with India in Indian Rupees. Thus, to make Indian Rupee more efficient as a global trading currency – Indian Foreign Trade Policy (FTP) is tweaked to allow for rupee settlement of international trade for export promotion schemes
Further FTP changes are extended to:
a) Export performance for recognition as Status Holders
b) Realisation of export proceeds under export promotion capital goods scheme or advance authorisation
c) Imports for exports
d) Duty-Free Import Authorisation schemes
It is interesting to note that Indian Rupee had breached mark of 80 Rupees against one US Dollar in July 2022 and at a certain point even crossed 83 INR per dollar – however, central government and RBI’s constant efforts pulled rupee back to some extent against dollar around 80 rupees.
It is expected that latest changes to FTP will make Indian Rupee strong / stable against US Dollar and other currencies in international market and further encourage international trade with global trading partners in Indian Rupees.
Source : Various media reports
