GS Paper 3
Syllabus: Indian Economy, Liberalization
Direction: In economy, be clear with the basics.
Context: It came in the explained section of Indian Express, and argues why the government is pushing for international trade in Rupee.
Current system: Most of the trade currently is in US dollar, wherein an importer needs to pay in US dollar to pay for the import of goods to India and an exporter gets pain in the dollar which he then converts into Indian Rupee for use in India.
Working on payment system in INR:
To settle trade transactions with any country, banks in India would open Vostro accounts of correspondent bank/s of the partner country for trading. Indian importers can pay for their imports in INR into these accounts. These earnings from imports can then be used to pay Indian exporters in INR.
A Vostro account is an account that a correspondent bank holds on behalf of another bank — for example, the HSBC Vostro account is held by SBI in India.
Benefits of trading in Rupee:
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- Enable trading with Russia
- Check dollar outflow
- Slow the depreciation of the rupee
- Promote the growth of global trade with emphasis on exports from India and to support the increasing interest of the global trading community in INR”.
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Government measures:
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- RBI has put in place an additional arrangement for invoicing, payment, and settlement of exports/ imports in INR
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Limitations:
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- The arrangement was not expected to help arrest the fall of the rupee to any significant extent.
- Not all countries may agree to trade in Rupee as the credibility of the rupee is lower than US dollars.
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Insta Links
RBI allows global settlement in Rupees
Mains Links
Q. Even as India and Russia explore new relationships, they continue to remain each other’s, all-weather friends. Comment. (10M)
Prelims links
The problem of international liquidity is related to the non-availability of (UPSC 2015)
(a) goods and services
(b) gold and silver
(c) dollars and other hard currencies
(d) exportable surplus
Answer: C
Since most International transactions occur in Dollars or other hard currencies.
The balance of payments of a country is a systematic record of (UPSC 2013)
(a) All import and export transactions of a country during a given period of time, normally a year
(b) Goods exported from a country during a year
(c) Economic transaction between the government of one country to another
(d) Capital movements from one country to another
Answer: A
In international economics, the balance of payments of a country is the difference between all money flowing into the country in a particular period of time and the outflow of money to the rest of the world.
