RBI panel recommendations for Internationalization of Rupee

RBI panel recommendations for Internationalization of Rupee

News: Reserve Bank of India(RBI) Inter-Departmental Group (IDG) has recommended several measures for Internationalization of rupee.

Background:
• Reserve Bank of India(RBI) had set up an Inter-Departmental Group (IDG) under RBI Executive Director Radha Shyam Ratho.

What is Internationalization of Rupee?
• Internationalization of the rupee is a process that involves increasing the use of the Indian currency in cross-border transactions, such as trade, investment, borrowing and lending.
• It can have various benefits for India, such as reducing the exchange rate risk, enhancing the global role and influence of India, diversifying the sources of funding, and promoting the development of domestic financial markets.

What are the short term measures suggested by committee?
• Enabling rupee as an additional settlement currency in existing multilateral mechanisms, such as Asian Clearing Union (ACU), to promote its use in regional trade and payments.
• Integrating Indian payment systems with other countries for cross-border transactions, such as allowing non-residents to open INR accounts in India or abroad, and enabling interoperability between UPI and other payment systems.
• Inclusion of Government Securities (G-Secs) in global bond indices to attract more foreign portfolio investors (FPIs) to the Indian debt market and increase the demand for rupee-denominated assets.
• Providing equitable incentives to exporters for rupee trade settlement, such as allowing them to retain a higher percentage of their export proceeds in INR accounts or offering them concessional interest rates on pre-shipment or post-shipment credit in INR.

What are the long term measures?
• Reviewing taxes on Masala bonds (rupee-denominated bonds issued outside India by Indian entities) to make them more attractive for issuers and investors.
• International use of Real Time Gross Settlement (RTGS) system for cross-border trade transactions to reduce transaction costs and time lag.
• Allowing banking services in rupee outside India through offshore branches of Indian banks or foreign banks.
• Inclusion of the rupee in Special Drawing Rights (SDR) basket of the International Monetary Fund (IMF).
• Examining taxation issues in financial markets to harmonize tax regimes of India and other financial centers. For example, rationalizing securities transaction tax (STT) or stamp duty on financial transactions to make them more competitive with other jurisdictions.
Source – Moneycontrol, Indian Express