Khurshid: Weighing options
New Delhi, Sept. 3: India is exploring possibilities of a rupee-based trade payment mechanism with countries other than Iran and Nepal, after the currencies of emerging markets continued to wobble against the dollar on fears of a renewed West Asian crisis.
Replying to queries on rupee trade, foreign minister Salman Khurshid said, “Our commerce minister is in touch with many countries. Let’s see where it is possible.”
He was speaking on the sidelines of a conference organised by Ficci.
India last week said it was exploring paying for oil from Iraq in rupees in an arrangement similar to the one it has with Iran.
The arrangement has allowed the Central Bank of Iran to open rupee accounts in two Indian banks, where Indian crude oil importers pay a part of their $9.5-billion bill in rupees. The Iranian central bank then allows Iranian importers use this to ship goods from India.
Officials said India’s tea, rice and pharma exports to Iran have boomed as a result. Iran is also exploring deals to use its rupee balances to buy equity in the Indian refining sector.
India will be targeting oil exporting countries in central Asia and Africa for rupee payment deals and at the same time, push the exports of textiles, pharmaceuticals, engineering goods and cars.
“We will be looking at deals with nations where we can balance our oil imports with corresponding exports and liquidate our rupee balances with these countries,” top finance ministry officials said.
In the 1960s, India had struck rupee payment deals with the Soviet Union for military hardware. However, the arrangement saw Russia stuck with huge rupee balances as exports from India were a small fraction of their imports.
Rupee depreciation in the 1970s and in 1991 did not help India as it simply made Indian goods cheaper for the Russians, leaving them with a larger stocks of rupees.
Though the rupee has depreciated some 16 per cent this year, the case for its internationalisation remains strong as India’s trade relations strengthen with the world, analysts say.
India is slated to account for 4 per cent of global trade by 2020. A growing body of traders and bankers in financial hubs such as London, Dubai and Singapore already deal in derivative contracts on the rupee.
At present, the rupee accounts for nearly 1 per cent of the daily global foreign exchange market turnover compared with over 80 per cent for the dollar but still trades three times more than China’s Remnibi. The Chinese currency accounts for just 0.3 per cent of the trade but is being increasingly positioned as a near global currency.
Both the Indian rupee and the Chinese currency are convertible on the current account but not on the capital account, but the rupee’s value is market determined, while the Chinese currency’s value is fixed by its central bankers.
The rupee is officially used for international transactions only with Bhutan and Nepal. Unofficially, traders in the UAE, Singapore, Malaysia, Afghanistan and other neighbouring Asian nations deal in rupees.