Rattled by the continued decline in the value of rupee, the Commerce and Industry Ministry has constituted a task force comprising representatives from the Ministry, Department of Economic Affairs, Reserve Bank of India (RBI), SBI, industry bodies FICCI, CII and Federation of Indian Exporters Organisation (FIEO) to work out currency swap arrangements with key trading partners of India.
An official statement said that in view of the rising trade deficit and consequent CAD, a need has been felt to examine the role of currency swap arrangement/agreements in order to suggest a possible mechanism to address the issue. It has been decided to constitute a Task Force.
The task force will restrict itself to issues pertaining to the swap of national currency for trade purpose only. “The purpose of the task force is limited to examine swap of national currency for trade which is distinct from currency swap agreements of Central Banks,’’ the official statement said.
The Task Force will examine various types of such arrangements and their implication for India’s trade and financial system besides studying the pros and cons of such pacts. It would also explore the possibility of currency swap agreement between India and identified countries and make recommendations accordingly. The Task Force may submit its recommendations to the Department of Commerce in four weeks, it said.
The issue had come up for discussion during the Board of Trade meeting chaired by Commerce and Industry Minister, Anand Sharma. Currency swap agreements involve exchange of one currency for another currency. A dollar swap arrangement would help India support the rupee. Swap agreements in US dollar is expected to provide confidence to the market and prevent excess volatility in financial and foreign exchange markets.
Currency swap has emerged as an important derivative tool after the global financial crisis of 2008 to hedge the exchange rate risks. India has signed currency swap agreements with Japan ($15 billion) and Bhutan ($100 million). China has shown active interest in entering into such an agreement with India, but it is yet to be signed.
The inter-departmental group of the Commerce Ministry will also have representation from Export Credit Guarantee Corporation of India. It would explore the possibility of using local currency for trade with major trading partners and advice on pros and cons of the same, it added.