10-year plan: Can the Indian rupee go global without 100% convertibility?

livemint.com:

Last week, Prime Minister Narendra Modi asked the Reserve Bank of India (RBI) to prepare a 10-year strategy to make the Indian rupee a globally “accessible and acceptable" currency. Since the Indian economy is expected to be among the world’s three biggest national economies in less than a decade, with only China’s and America’s larger than ours, it is easy to grasp why such an aim might beckon. It’s more than a matter of prestige.

A globalized currency confers major advantages. Above all, overseas demand for it—particularly for trade and reserves—would cheapen credit within the country. More rupee bonds being bought will push their yields down, so we’d effectively have foreigners lending us funds at lower rates.

The US has long had a clear edge on cost-of-capital, thanks to its dollar being the globe’s dominant currency, with even the euro unable to dislodge it. A global rupee would also be convenient for Indian economic agents; who wants foreign exchange risk? For the currency to actually go global, though, our economy would also have to globalize: Not only will we need a surge in demand abroad for what we produce, we would have to turn the rupee fully convertible. So far, US-style capital account convertibility has been a non-starter of an idea.

It gave policymakers shudders after the Asian currency crisis of 1997, which saw several open economies battered by capital flight and short-sellers like George Soros accused of betting on currencies crashing. Since then, India has stuck with an old ban on anyone limitlessly converting rupees into foreign money, with an annual cap on conversion and special channels for the settlement of commercial trades deemed okay. The rupee is thus partially convertible, with the privilege