The government has finalised arrangements with some 23 countries with whom Indian importers and exporters can trade in local currencies, thus eliminating dependence upon third party currency like the US dollar
 

What is this Currency Swap Arrangement (CSA)? This arrangement, between two friendly countries, which have regular, substantial or increasing trade, is to basically involve in trading in their own local currencies, where both pay for import and export trade, at the pre-determined rates of exchange, without bringing in third country currency like the US Dollar.

So far, the Commerce Ministry, Government of India, has finalised arrangements with some 23 countries with whom Indian can trade in local currencies. In simple terms, the importer or exporter in both the countries has to quote and receive settlements in their own currencies. No third country currency is involved, thereby eliminating the need to worry about exchange variations, for a start!

India's emphasis has been to persuade countries to come to this arrangement, where India has substantial or sizeable trade deficit with that country. By doing so, the dues are still payable in rupees, thus saving the need to settle in "foreign exchange" in say, US dollars, Euros, or whatever. Once the Finance Ministry approves the country with whom such an arrangement would be mutually beneficial, Commerce Ministry takes over the responsibility to start the bilateral talks to arrive at a suitable agreement.

It may be remembered that, in the case of Iran, 45% of the dues for payment of oil imports was made in Rupees, and credited to their account with UCO Bank in Kolkata. The balance was being made available in Euros in Turkey. Right at this point of time, Iran has a credit balance of Rs50,000 crore (or about $6 billion), and it is in our interest to closely work with that country to meet their needs, in terms of products, services and turn-key jobs.

It may be noted that, in the first half of the current fiscal (2013-14), there has been a depletion of $10.7 billion in foreign exchange reserves, purely due to the decline in net capital inflows.

Fortunately, in this list of CSA countries, there are leading, oil exporters such as Angola, Algeria, Nigeria, Iran, Iraq, Oman, Qatar, Venezuela, Saudi Arabia and Yemen. At the moment, efforts are being made to increase our exports to Iran, Iraq, Oman, Qatar and Saudi Arabia.

In the list of non-oil exporters, but with whom, we do have substantial trade, we have advanced countries like Japan, Russia, Australia, South Korea besides Singapore, Indonesia, Malaysia, Mexico, South Africa and Thailand. Recently, Japan increased the volume from $15 to $50 billion so that trade can flourish between two friendly nations, without involving third currencies.

Our current account deficit has narrowed down to almost 2% now, as compared to 4.5% in the first half of last year. It is essential that exporters take advantage of the present arrangements and strengthen the government's effort, by strictly adhering to the rupee quotations for trade.

From a promotional point of view, India must make efforts to participate in international trade exhibitions in all these countries, and sponsor trade delegations for furthering our trade. Commerce Ministry must take the lead to take active promotional campaigns in the countries mentioned above with whom we are running debit balances, particularly like Iran, Nigeria, Qatar, Saudi Arabia, Japan, South Korea, Mexico and Venezuela. Incredible India campaigns in the local TV and through local Chambers of Commerce would also help. Efforts to present India as a future and serious trade partner would help to cement our relations with these countries.

(AK Ramdas has worked with the Engineering Export Promotion Council of the ministry of commerce. He was also associated with various committees of the Council. His international career took him to places like Beirut, Kuwait and Dubai at a time when these were small trading outposts; and later to the US.)