The inter-departmental group, constituted by the Reserve Bank of India, submitted its final recommendations to accelerate the pace of internationalisation of the rupee.
India's growth and external sector metrics, along with global geopolitical developments, have set the stage for the emergence of various currencies, including the rupee, as prospective currencies for use in international transactions.
The inter-departmental group examined the prospects of the internationalisation of the currency and recommended a set of time-bound steps that would accelerate the pace of internationalisation. Some of these steps have already been initiated and are currently a work in progress, the RBI said in a report.
Over the short term, the IDG recommends the following:
Designing a template and adopting a standardised approach for examining the proposals on bilateral and multilateral trade arrangements for invoicing, settlement, and payment in Indian rupee and local currencies.
Making efforts to enable the rupee as an additional settlement currency in existing multilateral mechanisms, such as the Asian Clearing Union.
Facilitating a local currency settlement framework for bilateral transactions in local currencies and operationalising bilateral swap arrangements with the counterpart countries in local currencies.
Encouraging the opening of rupee accounts for non-residents (other than nostro accounts of overseas banks) both within and outside India.
Integrating Indian payment systems with other countries for cross-border transactions.
Strengthening financial markets by fostering a global 24x5 rupee market and promoting India as the hub for rupee transactions and price discovery.
Facilitating the launch of BIS Investment Pools in the Indian rupee and the inclusion of G-Secs in global bond indices.
Recalibrating the FPI regime and rationalising/harmonising the extant Know-Your-Customer guidelines.
Providing equitable incentives to exporters for rupee trade settlement.
Over the medium term, the IDG has recommended the following:
A review of taxes on Masala bonds.
International use of real-time gross settlement for cross-border trade transactions and inclusion of the rupee as a direct settlement currency in the Continuous Linked Settlement system.
Examination of taxation issues in financial markets to harmonise the tax regimes of India and other financial centres.
Allowing banking services in rupees outside India through offshore branches of Indian banks.
According to the report, India has made appreciable progress in terms of capital account convertibility, global value chain integration, the setting up of GIFT City, etc. The higher usage of the rupee in invoicing and settlement of international trade as well as in capital account transactions will give the rupee a progressively international presence, it said.
Non-residents were permitted to access the onshore interest rate derivative market in 2019. After this, the participation of non-residents has increased in the onshore markets, and the segmentation between the onshore and offshore markets has reduced, the report said.
Over the long term, India will achieve higher levels of trade linkages with other countries and improved macroeconomic parameters, and the rupee may ascend to a level where it would be widely used and preferred by other economies as a "vehicle currency", the report said.
Thus, the IDG also recommended that, in the long run, efforts should be made for the inclusion of the rupee in the IMF's Special Drawing Rights basket.
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