As the Narendra Modi government looks to deepen connectivity and economic co-operation with Bangladesh and other South Asian countries, it could look at a mechanism to push acceptance of the rupee as the trading currency in the region. Reportedly, initial talks on this issue have been held in the official circles. However, such a mechanism will take time to concretise as it concerns negotiations with other countries.
“While there is no definitive official position by India on the issues of reviving rupee trade yet, there is enough indication of considering the merit of this scheme at this juncture,” a report by the Research and Information System for Developing Countries (RIS) said, adding that New Delhi in the past had experimented with a similar arrangement with countries such as Russia, Nepal, Bangladesh, Iran and a few East European nations including Hungary, Rumania, Bulgaria, Poland and Czechoslovakia among others.
Expanded trading in rupee will help India by reducing the outflow of foreign exchange and even help in boosting the country’s balance of payments position – an indicator measuring international monetary transactions.
Besides, this would also strengthen the rupee and internationalise the currency while reducing the impact of exchange rate fluctuations on the economy, especially in relation to exports and imports.
According to the RIS report, rupee trade in its limited way also serves as an instrument of cordial trade relations between India and the partner countries.
“It is absolutely critical to push rupee as an acceptable trading currency. As talks of strengthening trade ties with neighbouring countries are gaining momentum, a mechanism too needs to be chalked out to push trade in rupee,” Ashwani Mahajan, national co-convenor, Swadeshi Jagran Manch said.
Though several experts have opined that a weak rupee is beneficial for the country’s exports, Mahajan added that there was no empirical data to prove that weak currency helps in balance of payment. “The aim should be to make the rupee fundamentally strong and this should not be done artificially through market interventions,” Mahajan said, adding that the support for depreciation of the rupee to boost exports is a lopsided view.
Last year, the eight members of the Shanghai Cooperation Organization which include India, China, Russia and Pakistan among others also underlined the need to chalk out a roadmap to boost trade in local currencies. The member countries, at the meeting, decided to adopt a system of mutual settlement of national currencies among themselves.
Changing trends in trading
While the US dollar and Euro continue to be the most preferred currencies for global trade, in the last few years emerging markets currencies such as the Chinese renminbi (RMB) and Yen have emerged as strong alternatives.
RIS in its report noted that India has some lessons to learn from the ways in which China has pushed for internationalization of renminbi.
“It is a good idea to start the exercise and it can begin with expansion of trade in rupee with several smaller Asian countries like Bangladesh, Sri Lanka, Vietnam and a host of others. We also need to have a more significant role in the geopolitical frame. Besides, India can identify a few products and start rupee trade in those. We had done a similar thing with Iran in relation to oil,” Pahle India Foundation’s (PIF) senior fellow and head of research Nirupama Soundararajan said.
She added that India must promote rupee trade while negotiating future bilateral deals.
Interestingly, late Prime Minister Atal Bihari Vajpayee had proposed opening up of borders within South Asia. He had also pushed for a common currency in the region much on the lines of the Euro – the single official currency for all countries in the European Union.
