With the Reserve Bank of India’s Inter-Departmental Group having expressed the view that the rupee possesses the potential of evolving into a global currency in the wake of India’s resilient economic growth amid global challenges, the potential of such a development is significant for India’s economic growth and international standing. If the rupee becomes a global currency, India can benefit in several ways. It can be used for international trade transactions, reducing dependence on other currencies and lowering exchange rate risks.
A global rupee could attract more foreign investors as they can hold and transact in the currency without facing conversion costs. India can potentially borrow funds from international markets at favourable interest rates, as the global acceptance of the currency may increase demand in bond markets. If its currency goes global, India’s influence in international financial matters could increase, leading to a stronger position in global economic and geopolitical discussions.
Easier accessibility and acceptance of the rupee in other countries could encourage more tourists to visit India, stimulating the sector. However, it’s essential to note that becoming a global currency requires sound economic policies, stability, and investor confidence. The RBI and the Centre would need to work on maintaining a robust and stable economy to fully harness the advantages of a global rupee.
Governments, both at the Centre and in states, need to implement prudent fiscal policies, maintain balanced budgets, and manage public debt effectively to ensure the stability of the economy. But they are hardly doing enough on these fronts to be able to take advantage of a global rupee. These inadequacies could pull India down along with the rupee. Addressing the inadequacies in fiscal policies, budget management, and public debt is crucial for India.
Failure to do so could indeed undermine the potential benefits and lead to economic challenges. It is essential for all governments to take decisive actions to improve these areas to ensure a stable and sustainable economy that can support the aspiration of the rupee becoming a global currency. Given the monumental debts of the central and state governments, they need to reduce government spending and increase revenue generation to gradually bring down fiscal deficits.
This may involve rationalising subsidies, optimising expenditure, and enhancing tax collection efficiency. The Centre needs to explore options for debt restructuring, such as refinancing or rescheduling debt payments, to manage the debt burden more effectively and alleviate short-term financial pressure. Divestment of non-strategic assets and privatisation of state-owned enterprises can help generate funds to repay debts and improve the overall financial health of the government. Both Central and state governments must develop robust debt management strategies that include prudent borrowing practices, effective debt monitoring, and proactive risk management. Ensuring transparency in government finances and public spending is important to build trust and confidence among investors and creditors. A lot will have to be done to realise the rupee’s potential.