Moves such as allowing foreigners to invest in Indian stocks, the liberalization of the NRE interest rates are a big welcome thereby inducing the Indians abroad to invest in India by incentivising them with higher rates of return and tax free accounts (for NRIs). ·Also, issuance of the Sovereign guaranteed bonds (debt bonds) to the NRIs at attractive interest rates would attract the foreign investment in the country. By hiking the interest rates within the nation (making borrowing costlier for the banks), RBI can make it viable for the Institutes to borrow directly from the foreign markets. Also, the de-regulation of the interest rates on the export finance would help the exporters to raise money freely in the foreign currency without any limit on the interest ceilings. Also, moves like the freeing the manufacturing and infrastructure companies to borrow from overseas can be extended to the other industries as well. · Also, another option is the creation of the regional hegemony (similar to that of China in South-east Asia or Germany in Europe) in the Indian sub-continent, thereby creating more demand for its domestic produce which would help to bolster the rupee and help it shield from the global fluctuations.[e.g. : Chinese renminbi (Yuan)] However, the major factor contributing to influence rupee the most is the crude oil import. Currently, India imports more than 80% of its crude oil requirements and pays in dollar, which is one of the main reasons for continued depreciation of the rupee. There are certain workarounds for the same : Opening of a dollar window for the oil companies to sell their rupees to the Central Bank and in turn purchase dollars from it at the daily reference rate. However, instead of selling rupees to the RBI, the oil companies can also sell oil bonds to the RBI. This would help to reduce volatility in the rupee by enabling oil companies to directly source a large part of their dollar requirement instead of buying large chunks from the market. (e.g. : Indian Oil Corp, currently buys a 20% of its daily forex requirement
from State Bank of India and the remaining through the bids from 16 identified public and private banks). Though holding the dollar window for the oil companies is okay with respect to the minor volatility control in dollar/rupee (due to the various prices offered by the various banks), however in the long run, it would lead to the erosion of the exchequer. The other option is the usage of the Nostro-Vostro accounts. The best example is that of the payments that were remitted to Iran by India for the crude oil import. (As per the payment mechanism, Indian oil refiners can pay up to 45 per cent of their oil imports from Iran in rupees. Iran will then deposit this amount in a separate account and utilise the money to import from India and make payments to the Indian exporters concerned.) Thus payment of mechanism being rupee, Iran can use this rupee to import non-durables from India like wheat etc. Thus, it would help to overwrite the base currency of the transaction from dollar to rupee. Also, it would facilitate the ease of the transaction by reducing a level of intermediate currency like dollar. [Conventional flow: Rupee US Dollar Local Currency (e.g : Iranian Rial or Saudi Rial.) So, by usage of the Nostro-Vostro accounts, the trading nations can eliminate the dollar’s role involved]. Also, this shifts the dependence of the rupee and spreads it over the other currencies, thereby immunising the rupee against the dollar. This practice can be implemented with the Gulf countries from which India imports majority of its oil. Another move by RBI is that the PSU oil companies will have to buy half of their daily foreign exchange requirements from a public sector bank and they can source rest from any other bank following competitive biddings. Presently, these oil companies, companies seek dollar quotes from multiple banks, giving an exaggerated impression of their demand for dollar. This leads of strengthening of dollar against the rupee – thereby leading to further depreciation of the rupee against the dollar. Thus, by varying the proportion of the amount of money that oil PSUs need to borrow from the public sector banks, RBI to an extent can hedge rupee from sliding against the dollar.
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