In addition to advancing the goal of rupee internationalisation, the government is developing a framework enabling nations or enterprises backed by sovereign governments to borrow from the Indian market in order to pay for their imports in rupee.
A senior official from the finance ministry told FE that nations with trade deficits with India or their businesses “may explore the prospect of borrowing from Indian markets (to pay for their imports, or take initiatives to scale up their exports to India).
Even though such bilateral mechanisms will take time to stabilise, both export and import in the rupee would reduce pressure on the forex reserves of both partner countries and have mutual benefits.
“On the surface, if you’re looking from the viewpoints of exports and investment, that is fantastic for India. Additionally, because such nations won’t have many options, it will assist India encourage exports to those nations that lack foreign exchange. As a result, they want to collaborate with India on this, according to CEO and Director General of the Federation of Indian Export Organisations Ajay Sahai.
But, he added, it must be determined whether the mechanism will take the shape of a sovereign loan in rupees or through bank financing of certain businesses.
According to Sahai, countries under international sanctions or in need of foreign currency, such as some in Africa and South Asia, may profit from the rupee borrowing option to finance imports from India.
The Reserve Bank of India permitted trade surplus nations, including Russia, to invest in government securities (G-secs) and Treasury Bills. These nations had excess balances in their rupee accounts. Due to a significant increase in India’s purchases of Russian oil, Russia has transferred some of its excess in its rupee account into the G-secs/Tbills, adding another source of funding to the local gilt market.
