The Reserve Bank of India (RBI) has introduced a mechanism to facilitate international trade in rupees. Now the import and export payments may be settled through a special Vastro account, while the banks with prior approval from the RBI can act as authorised dealers for such transactions. There is no doubt that this is a great step in the right direction considering the limitation of using the US dollar as the medium of international transactions, especially with counties under sanctions. This would also help reduce exchange rate risk on traders and pressure on the Indian rupee.
Currently, global trade and the economy are going through difficult times, especially after the Covid-19-inflicted recession and the renewed geo-political tensions in Easter Europe. Many developing countries in Asia, Africa and Latin America are on the verge of currency crises with severe foreign exchange shortages and volatility. Higher imported inflation and interest rate are in fact pushing these economies into a state of stagflation. At this juncture, an alternate arrangement to US dollar-based settlement system with one using INR would bring a win-win situation to both the partner countries in trade.
When the RBI floated the circular on this, there were wider discussions on internationalisation of the Indian rupee. Although this can be termed as a step in this direction, the internationalisation of the rupee requires a number of short-term and long-term actions.
An international currency is one that is used instead of the national currencies of the parties directly involved in an international transaction, whether the transaction in question involves a purchase of goods, services, or financial assets. Invoicing of merchandise trade (over-the-counter (OTC) and organised exchanges), including in trade between third countries; use of currency in the capital market, both national as well as international, where foreign investors are the major players, are certain immediate aspects of internationalisation.
As per the latest Triennial Central Bank Survey, US dollar accounts for 88.3% of global foreign exchange market turnover, followed by Euro, Japanese Yen and Pound Sterling with a major share, while the Indian rupee accounts for 1.7% underlining the need for pushing the currency much farther to get an international tag.
It is true that gradual currency internationalisation may happen with an increased share in international trade. However, in order to push the currency international so as to reap the benefits of trade and investments, multiple and concerted steps from the government and the regulators are important. Some of them include the removal of restrictions on buying and selling of domestic currency in both spot and forward markets; domestic firms are able to invoice exports and imports in their own currency; foreign firms, financial institutions, government institutions and individuals are able to hold the country’s currency and financial instruments; foreign firms and financial institutions, and government institutions are able to issue marketable instruments in the country’s currency; country’s own financial institutions and non-financial firms are able to issue on foreign markets instruments denominated in their country’s own currency; international financial institutions, such as the World Bank and regional development banks, are able to issue debt instruments in a country’s market and to use its currency in their financial operations; and the currency may be included in the “currency baskets” of other countries, which they use in governing their own exchange rate policies.
As far as the Indian rupee is concerned, our currency is fully convertible in the current account i.e., conversion mainly for trade in goods and services, but partially in the capital account i.e., conversion for the purpose of moving capital across the border. Here it would be interesting to look at the position of the Indian rupee against the points discussed in the above paragraph, which will acknowledge why the rupee is partially convertible in the capital account. In fact, India has already come a big way in capital account convertibility, but with very cautious and gradual steps. Although we opened up our economy for portfolio and direct investments, experience from East Asian crisis and other major currency crises have taught us to avoid any radical step in this direction. This may be remembered that the idea of issuing foreign currency sovereign bonds which were highlighted by the Finance Minister in one of her budget speeches was still not actioned upon.
Some of the benefits of internationalisation of the rupee would include limited exchange rate risk for traders in goods and services, access to international financial markets for cheaper capital by domestic firms and institutions without incurring exchange rate risk, and wider business opportunities in global capital markets for domestic financial institutions. On the government side, this may give more options to meet their budgetary deficit while the issue of the current account deficit can be addressed without drawing down the official reserves.
As regards the cost is concerned, internationalisation of currency will limit the country’s ability to anchor monetary policy to its domestic economic landscape and have a fixed or highly managed exchange rate regime. Domestic currency may also be prone to wider fluctuations and depreciation as the overseas investor sentiment will have wider ramifications on the currency when a sizeable portion of currency and instruments are held overseas. Other than the above, the issuance of foreign debt in the domestic market may pose risk especially when the debtor default. Most financial crises, if it is the crises 1980s or 1990s or 2008, are testimony to the cost involved.
Overall, currency internationalisation is a double-edged sword with the ability to hurt if we are not prepared well but has immense potential. As a growing economic powerhouse, wider use of local currency with fewer barriers will help support international trade and investments. The recent initiative of invoicing trade in rupee comes from a different global requirement and order, but for true internationalisation and wider use of rupee overseas, opening up of trade settlement in rupee alone will not suffice. Further opening up and liberalised settlements in the Indian rupee for various financial instruments both in India and overseas markets are more important. The promotion of rupee-based settlement in both international trade and financial markets would also attract more global players to go for this option as the world is moving towards a multi-polar system where India will be a dominant power. A strong foreign exchange market with an efficient swap market may be another precondition for rupee internationalisation. Further improvement in overall economic fundamentals, and financial sector health, followed by an upward movement in sovereign ratings would also strengthen confidence in the Indian rupee, making the currency ready for the next step in its international journey.
(The writer is Director, Centre for Economics and Finance, Administrative Staff College of India (ASCI) Hyderabad)
Finance Minister Nirmala Sitharaman said in the parliament “RBI is of the view that crypto currencies should be prohibited. Cryptocurrencies are by definition borderless and require international collaboration to prevent regulatory arbitrage. Therefore, any legislation for regulation or for banning can be effective only after significant international collaboration on evaluation of the risks and benefits and evolution of common taxonomy and standards.”
The Finance Minister has also said that the RBI has registered its concern over the adverse effects of cryptocurrency on the Indian Economy. “RBI mentioned that cryptocurrencies are not a currency because every modern currency needs to be issued by the Central Bank/Government. However, the value of cryptocurrencies rests solely on the speculations and expectations of high returns that are not well anchored, so it will have a de-stabilising effect on the monetary and fiscal stability of a country,” FM said.
It is strange to note that the government is of the view that we can ban cryptocurrencies only after the “evolution of common taxonomy and standards” at the international level.
All along the RBI Governor was against permitting cryptocurrencies in the country. The earlier attempt to restrict crypto currencies was struck down by the Supreme Court as there was no clear policy on cryptocurrencies. The Supreme Court said, “When the consistent stand of the RBI is that they have not banned virtual currencies and when the Government of India is unable to take a call despite several panels coming with several proposals, including two draft Bills, both of which advocated exactly opposite positions, it is not possible for us to hold that the impugned measure is proportionate.”
There is no need to wait for any collaboration with other countries to ban cryptocurrencies in our country. There are already restrictions and bans by different countries as per their individual requirement.
Algeria currently prohibits the use of cryptocurrency following the passing of financial law in 2018 that made it illegal to buy, sell, use or hold virtual currencies.
In Bolivia, there is a complete ban in place on the usage of Bitcoin since 2014. The Bolivian Central Bank issued a resolution banning it and any other currency not regulated by a country or economic zone.
China has cracked down on cryptocurrencies with increasing intensity throughout 2021. Chinese officials have repeatedly issued warnings to its people to stay clear of the digital asset market and have clamped down hard on mining in the country as well as currency exchanges in China and overseas. The People's Bank of China treats Cryptocurrencies as speculative assets and warns people to protect their pockets. On 24th September last year, China out rightly banned cryptocurrency transactions.
In Colombia, financial institutions are not allowed to facilitate Bitcoin transactions. Egypt has classified Bitcoin transactions as ‘haram’ which is prohibited under Islamic law. In Indonesia, Bitcoin cannot be used as a means of payment since January 1, 2018. In Nepal, Bitcoin has been declared illegal since August 2017. Russia has its own restrictions on cryptocurrencies. In Vietnam, using cryptocurrencies is a punishable offense.
Hence, waiting for some international collaboration to ban cryptocurrencies in our country does not seem to be logical. Over 115 million Indians have already invested in cryptocurrencies. By 2030, the total value of investments in cryptocurrencies from India will cross $241 million (about 1,900 crore). To save these common investors, the government must immediately ban cryptocurrencies.
(The author is a retired banker: Article courtesy THE PIONEER )
India’s goods and services exports have already crossed USD 675 billion in the last fiscal year and the country is now aspiring to take international trade to USD 2 trillion by 2030, Commerce and Industry Minister Piyush Goyal has said while interacting with faculty, researchers, and students at the Stanford University.
India would be completing 100 years of Independence, we will be at least a USD 30 trillion economy in a business-as-usual scenario and possibly a USD 35-45 trillion economy if some of the aggressive plans that the government is putting together work well. That’s the kind of opportunity that I bring to the table,” Goyal said.
India, with a GDP of USD 3.3 trillion, is currently the fifth largest economy in the world only behind the US, China, Japan and Germany. A decade back, India was ranked 11th among the large economies while the UK was at the fifth position. With a 13.5 percent expansion in the June quarter, the Indian economy has overtaken the UK, which has slipped to the sixth spot.
From April-August 2022-23, India’s exports registered a growth of 17.12 percent to USD 192.59 billion. Imports during the five-month period grew 45.64 percent to USD 317.81 billion.
The trade deficit widened to USD 125.22 billion in April-August as against USD 53.78 billion in the same period last year. India’s exports contracted by 1.15 percent to USD 33 billion in August due to subdued demand in developed markets.
Goods and Services Tax (GST) collection rose 28 per cent to Rs 1.43 lakh crore in August, the Finance Ministry said on Thursday.
The robust GST collection has remained over the Rs 1.4-lakh-crore mark for the sixth straight month in August. "Better reporting coupled with economic recovery has been having a positive impact on the GST revenues on a consistent basis," the ministry said in a statement.
The gross GST revenue collected in August 2022 stood at Rs 1,43,612 crore of which Central GST is Rs 24,710 crore, State GST is Rs 30,951 crore, Integrated GST is Rs 77,782 crore (including Rs 42,067 crore collected on import of goods) and cess is Rs 10,168 crore (including Rs 1,018 crore collected on import of goods), the ministry said.
The revenues for the month of August 2022, registered 28 percent increase over the GST revenues of Rs 1,12,020 crore collected in August 2021.
India is embarked on a journey to restore itself to the top of the global leadership tables in terms of economy and prosperity, the head of an India-centric American business group has said, underlining that US companies are geared up to be part of the country's ambitious vision to become a USD 30 trillion economy.
“India is embarked upon a journey to restore itself to the top of the global leadership tables in terms of economy and prosperity. India used to occupy as much as 25 per cent of the global GDP. I think that potential is there,” he said.
Keshap said that American companies are excited and geared up to be part of India's ambitious journey. "And I think that Americans want to see democracies succeed and they want to see democracies thrive,” he said.
Ahead of the India Ideas Summit in New Delhi on September 6 and 7, Keshap, who is headed to India along with top board members of the USIBC and leadership of the US Chambers of Commerce, said that he sees a very bright future for the US-India ties.
It is important that America and India work well together to not only capture the full potential of India's rise but to show the value of democracy to the entire world, he said.
"So building that high trust ecosystem is really important,” he said. “Business community wants to show its support for that vision, and wants to show its support for the idea of India as a developed country in 2047, as the Prime Minister (Narendra Modi) said, in the Independence Day speech the other day at Red Force,” he said.
India is already becoming a services superpower. There's a huge digital economy trade between the United States and India. It's over USD 100 billion a year but total trade between America and India is only about USD 150 billion a year, Keshap said.
"I have said repeatedly in public that we ought to hit USD 500 billion a year, India ought to be one of America's top trading partners and we ought to be India's top trading partner," he said.
"How do we go about doing that?” he asked. “Number one, we set really good standards, high-quality standards for the digital economy, which is going to grow and grow and grow. Number two, we work on things like life sciences and the well-being of an ageing world and also a young world," Keshap said.
"India is frankly going to have both having that life sciences component where our companies working together in collaboration for research and innovation is going to be really vital,” he said. Manufacturing, supply chain, and e-commerce are the areas where India is already growing and becoming very strong, Keshap said. "Given geostrategic necessities and concerns, I think India has a huge opportunity if it plays its cards right to attract a lot of manufacturing,” he said.
“This is why I've talked about the ease of doing business, level playing field, very clear regulatory structures, tax regimes, etc, and speedy arbitration of any disputes that may come up," he said. "If India can work to create that software of investment, I think you'll see a lot of investments flow into India. It will create a lot of high-quality jobs, benefit the entire world and help India achieve its goals. It is a very ambitious goal,” Keshap said.
India, he said, could be a real agricultural superpower if it works on instituting the right conditions for its producers and farmers. “As we look at the USD 500 billion target, services are going to play a really important role. Manufacturing, supply chain, e-commerce is gonna have to play a big role in pharma and life sciences, defence and aerospace,” he said.
“From my perspective, as the president of a trade association, hundreds of executives across our 200 member companies see the potential value of India," Keshap said.
"This is where I think, India has a shining moment to take advantage of global trends in the most beneficial way and what we're offering is constructive feedback about the regulations and the ways that India can posture and position itself to capture the maximum advantage,” Keshap said.
Keeping this in mind, the focus for this year's India Ideas Summit is on “Maximising the Next 75 Years of US–India Prosperity” – reflecting the milestone of 75 years of diplomatic relations between the US and India and the continued growth of bilateral partnership for global good.
During the two-day conference, the participants will discuss the US-India partnership in the context of the Indo-Pacific and an increasingly dynamic and competitive strategic landscape.
COURTESY: THE PIONEER/PTI
The Indian economy has the world’s most remarkable growth rate and is projected to grow at 7.1-7.6 per cent in 2022. The rising fuel prices caused by the Russian-Ukraine war have created instability worldwide. The South Asian nations like Sri Lanka and Pakistan are already experiencing the consequences, and even Bangladesh is now requesting a bailout loan from the IMF.
A recent report by the International Monetary Fund (IMF) projected India has a zero per cent chance of getting into recession. Whereas a country like the U.S. has a 40 per cent chance, and China has a 20 per cent chance of getting into recession. So, it’s important to note how the US-China rivalry could affect India’s economy in the long term.
The rivalry started more recently on Donald Trump’s last day in office. The US raised the issue of China’s crime against humanity and genocide in the Xinjiang region against the Uyghurs and banned all imports from the area.
Second, the Joe Biden administration continued some of Trump administration policies, with more focus on action. It maintained the tariffs on Chinese imports and sanctioned Chinese officials over policies in Hong Kong and Xinjiang. The US banned dozens of Chinese companies and stressed competing with China.
Third, the collaboration on climate change and agreed to boost cooperation and work together on increasing renewable energy as both the countries are the world’s top emitters of greenhouse gases. But, the collaboration on climate change got more tension.
Fourth, the US imposed a diplomatic boycott on the Beijing Winter Olympics, citing the Chinese government’s human rights abuses in Xinjiang and elsewhere.
Fifth, amid the Russian-Ukraine war, Biden pressed Xi Jinping on Russia’s war in Ukraine. China refused to condemn Russian President Vladimir Putin for the war and the resulting humanitarian crisis.
Sixth, US Secretary of State Antony Blinken emphasised the importance of strengthening the US competitiveness toward China and called China the most serious long-term challenge to the international order.
Seventh, the visit of Congress member Nancy Pelosi to Taiwan. China warned that US support for Taiwan is like playing with fire. The current situation of small-scale war between both countries arose. Biden has clearly stated that he would come in support of Taiwan if China attacks it. The US deployed their nuclear warships, men in the Taiwan strait, for regular patrolling as China saw it as their internal matter, even supported by Russia. It will be essential to see further development in China’s invasion of Taiwan.
India is one of the developing countries, so bad trade and tariff policies hurt India. India is seeking to give a boost to the manufacturing sector. This could be an excellent chance for India, as a report from the United Nations said that a few countries would benefit from the trade tension, and India is one of them.
The impact on India is both an opportunity and a threat. Everything has two sides, good and evil, and the trade problems between the two countries can be a good thing for India. It will be an excellent chance for those who sell goods abroad. Since the US taxes Chinese goods heavily, Indian traders can fill the gap and take advantage of the opportunity.
Trade tension between the US and China has some adverse effects on India. Because of the trade tension between the US and China, other countries like India are also affected because they have to deal with the constant changes and can run out of finished goods or raw materials if demand increases. Also, taxes and fees became more expensive in the country.
At 80 rupees per dollar in July 2022, the value of rupees has already gone down. This happened simultaneously with Biden’s threat of a new round of export tariffs, which automatically hurt India’s trade deficit. Investors are being more careful because of the global trade war.
As trade tensions between the US and China continue, the world economy and India’s economy become less stable. Indian traders can fill the gap, and companies that make iPhones can establish factories in India, which is good for the country’s growth. As the value of a country’s currency falls, trade tensions are likely to rise. The CEOs of Indian companies need to come up with a business-friendly strategy and other plans to help the economy. If the US and China want to avoid a trade war, they must cut taxes as the economic growth of each country depends on trade, which is the backbone of every country.
The National Stock Exchange (NSE) last week shared compliance certificate on insider trading with companies, who have to give declaration as they have control over the sensitive information and they are are tracking it at their end.
Soon after this, NSE is tracking companies are following this compliance or not to stop insider trading.
As per SEBI's regulations on insider trading prohibition, listed companies have to maintain a structured digital database (SDD) to store UPSI, which includes a range of information like financial numbers, business plan, decision to sell off a factory, merger, demerger, dividend etc that can move the stock price.
The companies in the compliance certificate has to ensure that person's name along with PAN number or any other document has to be maintained with whom the information has been shared.
This declaration had to be submitted by August 9.
As the Indian game developers begin to expand their global footprint, shares of ace investor Rakesh Jhunjhunwala-backed online gaming company Nazara Technologies surged 20 per cent after the firm reported a 22 per cent rise in net profit for the June quarter this year.
Jhunjhunwala, who understood the future of online gaming in India when the industry was still in its infancy, owned 10.03 per cent or 65.88 lakh shares in Nazara Technologies, whose partnership with global e-sports platforms, game publishers and brands have made it the leading e-sport company in the country.
Nazara is diversified gaming and sports media platform with a presence in India and across emerging and developed global markets such as Africa and North America, with offerings across the interactive gaming, e-sports and gamified early learning ecosystems.
The company owns some of the most recognisable products such as World Cricket Championship, Kiddopia in gamified early learning, NODWIN and Sportskeeda in esports and esports media, and Halaplay, Qunami and OpenPlay in skill-based, fantasy and trivia games.
The company is also known for its games Chhota Bheem and Motu Patlu series. The consolidated net profit of Nazara Tech in the June quarter rose to Rs 16.5 crore against Rs 13.5 crore net profit in the corresponding quarter of the previous fiscal.
According to its CEO Manish Agarwal, the multi-pronged approach to capture opportunities has been yielding positive traction and "we are in line with our target growth plans for FY23".
"We have also seen stabilisation of unit economics for Gamified Early Learning business," he added.
In April, Nazara Tech announced a $2.5 million investment in US-based game fund BITKRAFT Ventures. BITKRAFT Ventures is a leading investment platform for gaming and Web3 / blockchain projects globally. Nazara now aims to build a network to gain access into the global gaming ecosystem. It has acquired multiple companies over the past few years.
Over 2022-23, Indias growth will average 7 per cent, the strongest among the largest economies, contributing 28 per cent and 22 per cent to Asian and global growth, respectively, Morgan Stanley said in a report.
India is best positioned within Asia to deliver domestic demand alpha. Its cyclical recovery will be sustained by structural factors.
"The recent strong run of data increases our confidence that India is well positioned to deliver domestic demand alpha, which will be particularly important as developed markets' growth weakness percolates into Asia's external demand," Morgan Stanley said.
The key change in India's structural story lies in the clear shift in the policy focus towards lifting the productive capacity of the economy. Policymakers have taken up a series of reforms which will catalyse an upswing in the private capex cycle, helping to unleash a powerful productivity dynamic, leading to the onset of a virtuous cycle.
Cyclically, the economy is lifting off after a prolonged period of adjustment. The corporate sector has delevered and the balance sheets of the financial sector have also been cleaned up. This backdrop of healthy balance sheets and rising corporate confidence bodes well for the outlook for business investment, the report said.
The biggest challenge that was emerging to India's macro outlook was the sharp spike in oil/commodity prices weighing on macro stability.
"However, with the 23-37 per cent decline in oil/commodity prices since the March-22 peak, we think that macro stability indicators will head back towards the comfort zone. Against this backdrop, we project that the RBI does not need to lift rates deeply into restrictive territory. In other words, the RBI will not need to slow domestic demand growth meaningfully to control the macro stability indicators," the report said.
The Indian fintech market is expected to log 10 times growth to achieve $1 trillion in assets under management (AUM) and $200 billion in revenue by 2030, a new report showed on Tuesday.
Much of the growth will be driven in the digital lending market, which is expected to grow to $515 billion in book size by 2030, according to the report by Chiratae Ventures in collaboration with Ernst and Young (EY).
India is currently home to 21 fintech unicorns and factors like favorable demographics, growing technology adoption, higher disposable incomes and aware customer is fuelling this growth.
"The Indian fintech market has been a formidable global force, contributing to the largest share of unicorns in India. We have been a technology-first investor, having backed companies such as EarlySalary, Kristal.ai, PB Fintech, ShopSe and Vayana, among others," said Sudhir Sethi, Founder and Chairperson, Chiratae Ventures.
Payments, digital lending, wealth tech, insurtech and neo-banking will contribute to the growth in the fintech space, with agri and proptech considered to be big bets.
With 5 times the growth in the digital tech talent, India has the opportunity to address the global digital skill gap and establish itself as the destination of digital and tech talent, the report noted.
"India is recognised as a strong fintech hub globally and is increasingly becoming a talent destination for fintech businesses," said Rajiv Memani, Chairman and Managing Partner, EY India.
The buy now pay later (BNPL) model has become mainstream and is on an accelerated growth trajectory, emerging strong not only in B2C but also B2B payments space.
"New asset classes, crypto and NFT, will also continue to attract investor interest as fintech continue to solve for traditionally underserved customers," the report noted.
India's forex reserves rose around $2.4 billion during the week ending July 29, after falling for last four consecutive weeks, on back of positive inflows by foreign investors in the Indian equity market.
The country's foreign exchange reserves rose by $2.315 billion to $573.875 billion during the week ending June 29, according to the Reserve Bank of India's (RBI) weekly supplementary statistical data.
"India's foreign exchange reserves, supplemented by net forward assets, provide insurance against global spillovers. Our umbrella remains strong," RBI Governor Shaktikanta Das said. "The Reserve Bank has also used its foreign exchange reserves accumulated over the years to curb volatility in the exchange rate," he added.
During the current financial year (up to August 4), the US dollar index (DXY) has appreciated by 8 per cent against a basket of major currencies. In this milieu, the Indian Rupee has moved in a relatively orderly fashion depreciating by 4.7 per cent against the US dollar during the same period - faring much better than several reserve currencies as well as many of its EME and Asian peers.
The depreciation of the Indian rupee is more on account of the appreciation of US dollar rather than weakness in macroeconomic fundamentals of the Indian economy.
"Market interventions by the RBI have helped in containing volatility and ensuring orderly movement of the rupee. We remain watchful and focused on maintaining stability of the Indian rupee," Das added.
In July, foreign investors turned net buyers in the Indian equities nearly after 10 months, with an investment of around Rs 4,980 crore in the Indian equity markets. This comes heavy sell-off by these entities of around Rs 50,203 crore.
According to NSDL data, investment of foreign investors in July month stood at Rs 4,989 crore, as compared to over Rs 50,000 crore outflows in June, Rs 39,993 crore in May and Rs 17,144 crore in April.
The other central banks of Asia also used their foreign exchange reserves to defend their currency.
Despite the resultant drawdown, India's foreign exchange reserves remain the fourth largest globally.