Rupee Internationalisation (Causes for rupee decline (Wars with Pakistan…
Indian rupee was once a multilateral
currency, its usage was prevalent across Indian Ocean in places as varied as Java,
Borneo, Macau, Muscat, Basra and Zanzibar
The historic dhow trade ensured that the
Gulf had a familiarity with the rupee for over five centuries, with Oman utilising
the 'Gulf rupee' till 1970
The accession of George V to the
throne in 1911, enshrining his rule of the British Raj, led to the issuance of a new rupee coin.
The colonial rupee leveraged the
Mughal rupee's popularity, facilitated by trading communities, migration and the Raj's hegemony
The annexation of Sindh, Ceylon and
Burma further encouraged the primacy of the rupee in these areas.
Meanwhile, a number of Indian
merchant communities established themselves in such regions, aiding in its convertibility.
Rupee after Independence
Even after Independence, Dubai
and other Gulf States were using RBI-minted Gulf rupees until 1966
Only the devaluation of the Indian
rupee in 1966, after the 1965 war, led to such nations switching to their own currencies.
Now, only Nepal and Bhutan regularly
conduct bilateral trade with India in rupees
Value of rupee vs Dollar
1947: Rs 3.30
2018: Rs 73.0
Causes for rupee decline
Wars with Pakistan and China, leading to political Instability
Adoption of Five Year Plans requiring foreign
Oil Price Shock of 1973
Not able to develop global competence in
Imports far exceeding exports.
Higher logistics costs, which are hampering
Dependent on FPI / FDI flows for currency
In recent times, it is declining because
-of higher oil prices and FPI outflows from
stocks and bonds.
-Ongoing USA.-China trade war,
-sanctions on Iran
-and expected further upward movement of oil prices
What is govt doing?
Reduce imports and promote exports
RBI tries to reduce the volatility by
selling the dollars.
Focus on getting foreign money by
liberalizing rules for FDls / FPls as well as external commercial borrowing loans.
Issuance of NRI bonds.
Conducting sovereign bond issuance
These are all stop-gap measures, but the real problem lies in
how to reduce the dependence of rupee on US-dollar
How to reduce dependence on dollar?
India should consider rupee payment
mechanisms, starting with Countries like China
We should adhere to the fiscal deficit
targets, without slippages, because these are viewed by the investors.
Industrial growth should be given
topmost priority, so that rupee swaps with other Countries is possible for institutionaIization.
More formalisation of the Indian
economy, by deterring black money transactions as it is always seen
rupee falls just prior to an election.
To substantiate this, when one looks
at data, the rupee depreciated just prior to the election schedule, six
times in the past seven elections
How to keep an eye on Black money?
It should revolve around tax rate
rationaIization, to increase the taxbase and increase the compliance with tax returns
Support to the cashless economy
and creating effective and credible deterrance
Administrative agreements with Countries
like the U.K. and Switzerland, which can offer mutual tax sharing information
should be encouraged
It is important to create a
detailing company transfers out and NGO transfers into India, all reporting
to the Financial Intelligence Unit (FIU).
Audit cycles for income tax, service tax
and excise tax departments should be aligned, helping the Large Taxpayer Unit(LTU) become more effective, increasing the scope of simultaneous scrutiny and