India’s government has announced plans to boost its exports to $2 trillion by 2030, shifting from the dollar to rupee in foreign trade. New Delhi is seeking to substantially boost the nation’s exports by 2030
India’s central government has unveiled its new Foreign Trade Policy, which is expected to facilitate greater trade, boost manufacturing, help to shift away from the US dollar, and make the rupee a global currency.
The FTP 2023, revealed on Friday by Indian Commerce and Industry Minister Piyush Goyal, comes into effect on April 1.
Rupee trade was made the centerpiece of the new plan as part of New Delhi’s broader policy aimed at securing a global status for the currency and allowing it to be used for international trade settlement.
Indian policymakers have recently taken several steps towards shifting away from the greenback to rubles and rupees in mutual trade with sanctions-hit Russia. The nation agreed to switch to a rupee payment mechanism for Iranian crude imports. Malaysia is the latest nation to agree to settle trade with India using the rupee.
Under the new policy, India is also planning to raise the country’s outward shipments to $2 trillion by 2030. The plan includes a wide range of steps like expanding the FTP benefits to ecommerce exports and doubling the value limit for exports through courier.
The FTP 2023 also proposes to create a designated zone with a warehousing facility to help ecommerce aggregators towards easy stocking, customs clearance and returns processing.
India’s trade has been hit over in recent years due to Сovid-related disruptions to supply chains and a slowdown in global trade amid ongoing geopolitical tensions, RT reports
Centre aims to internationalise rupee in foreign trade: Know the plan – Hindustan Times writer Snehashish Roy takes the story further.
Union commerce and industry minister Piyush Goyal on Friday announced the Foreign Trade Policy 2023, breaking the tradition of setting a five-year goal and adopting a ‘long-term’ focus. The minster said there is no end date to the policy and it will be updated as and when necessary.
What is internationalisation of Rupee?
Internationalisation of Rupee refers to the process of increased cross-border transaction of Indian currency, especially in import-export trades followed by other current account transactions and then capital account transactions. This would enable the international settlement of trade in Indian rupees in foreign trades, as opposed to other currency including US dollars.
Note: Current account is used to deal in export and import of goods and services, whereas, capital account is made up of capital through cross-border transaction in the form of investment and loans.
Why do we need to internationalise Rupee?
The US dollar dominates the foreign trade with around 88.3% turnover in the global foreign exchange market. It is followed by the Euro, Japanese Yen and Pound Sterling. Whereas, Rupee has a turnover of mere 1.7%. It gives US an edge over others and allow them to pay for its external deficits with its own currency, giving immunity from balance of payments crises.
How will it work?
With this effort, Indian importers can make payments using rupee to a special account made in the name of exporter from the partner country in an Indian bank. Similarly, Indian exporters will also be paid in a special account made in its name in a bank of the importer’s country. The transaction will be made at a market determined exchange rate. This way there will be no real cross-border transaction of currency, despite both importers and exporters being paid in full amount.
Special bank accounts are called Vostro accounts. The surplus in these accounts could be used for investments in government securities of the host countries and make other payments.
What are the advantages of this?
The most important advantage of internationalising Rupee is to reduce dependency in US dollar for foreign trade and eventual reduction of holding foreign exchange reserves. It further protects India from external economic shocks. It would further increase the bargaining power of India in international business.