India steps up push to make rupee a power player, but the road is long
mechanism to allow trade settlement in rupees. An important headway came in December 2023 with India’s first-ever rupee payment for oil from the United Arab Emirates, a major trading partner. Earlier, an RBI panel also gave recommendations, some of which led to the central bank announcing in May a plan to allow non-residents to open rupee accounts.
The budget announcement also comes at a time when the rupee has been in a perceptible sweet spot. Shielded by rising capital inflows, it has moved in a narrow range with low volatility this year, bolstering its credibility when peers have faced downward pressures, battered by a strengthening US dollar and rising commodity prices. While relative stability alone doesn’t guarantee globalization, it is a show of strength and could push a case for increased global use.
Also read: Our new foreign trade policy is transformational and futuristic “What FM Sitharaman announced is a continuation of existing efforts," Dhiraj Nim, chief economist at ANZ, said. “Internationalizing the rupee is a long-term game. More such measures will be needed over the coming years." For a national currency to globalize, full convertibility—or free, market-driven, exchange of a currency with others, and vice versa—is essential.
The rupee is fully convertible on the current account (e.g. trade) since 1992, it’s not on the capital account as there are restrictions and ceilings on rupee flows for cross-border investments. However, as a lower middle-income economy in transition, India’s approach to full capital account convertibility has been cautious as opening up comes with increased vulnerability to external shocks.
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