The global impact of policy calls may affect our rupee ambitions
forex reserves. Today, the US has a debt-to-GDP ratio of around 130%, Japan 260%, UK nearly 100% and the eurozone 90%. The ratio for India is around 90%.
This figure does not seem high in comparison with these nations. But consider the fiscal implications. The other four, which account for 90% of the world’s forex transactions and reserve holdings, usually run high deficits that keep their debt paper in sufficient supply for their currencies to play a global role as means of exchange and stores of value.
The US and Japan have fiscal deficits of around 5.6-5.8%. For the UK, it is 4.5%, while for the eurozone, it is 3.3% (the 3% norm emanated from its process of monetary union). Hence any currency that claims ‘reserve’ status must run deficits so that other countries can invest in their debt and access that currency.
Can India afford to run higher deficits to supply rupees to the world? Can we escape its impact in terms of higher inflation? With talk of the rupee’s internationalization now gathering momentum, some policy decisions have been taken which are right in terms of rationale, but may come in the way of its global prospects. These ideological inflections need to be addressed as we work on globalizing the rupee. The Centre’s announcement of import licensing for laptops, computers, tablets, components and other items has raised antennas.
Its argument is that licence issuance only means permission must be taken for imports and need not act as a restriction. It makes sense because it will keep a check on Chinese imports, which have swelled in recent years. Further, as the government has included computers, laptops and mobile phones under its production linked incentive scheme, it wants to prod domestic manufacturing
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