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The Finance Ministry is examining a list of countries with which India can carry out trade in local currencies to save foreign exchange. But several major oil exporting countries are not included in it. “Oil exporters would generally not be too interested in trading in local currencies as they have huge trade surpluses with India and would not gain much from the exercise,” a Commerce Ministry official.

Although the list includes some important oil producers such as Nigeria, Saudi Arabia, and Iraq, some other major crude oil suppliers to India such as Kuwait and UAE have been kept out. Other countries on the list include Russia, Japan, Singapore, Australia, Indonesia, South Korea, Malaysia, Mexico, South Africa and Thailand.

A task-force with representatives from various Ministries was formed in 2013 to draw a list of countries with which India could trade in local currencies. Its report is now with the Finance Ministry which would prepare a short-list based on feasibility following which bilateral negotiations would begin.

The benefits

A currency swap arrangement allows countries to pay for what they buy from each other with their domestic currencies at pre-determined exchange rates instead of trading in US dollars. This helps countries to save foreign exchange which in turn strengthens the domestic currency. “In many cases we are sure that the countries concerned would never agree to a swap arrangement, so we have kept them out. Some others we have included as there are factors, other than economic, that could influence their decisions,” the official added.

For instance, in the case of Iran, the country has willingly entered into a rupee trading arrangement with India despite a huge trade imbalance because economic sanctions placed against it by the West have restricted its trading options. While the task force has tried to focus on countries with which India has a sizeable trade deficit in order to benefit most from the arrangement, in case of China it has proposed a ceiling of $10 billion.

“We have recommended a ceiling of $10 billion with China for trade in local currency because in this case it could act as an incentive for Indian buyers to buy more Chinese goods and further tilt the balance against India,” the official said.

India is at present struggling to stem the depletion in its foreign exchange reserves and also bring down the current account deficit. This would make its balance of payments position more stable and attract higher foreign investments.

Source-On Request