It is essential to approach the internationalisation of the rupee cautiously, considering the potential advantages and risks associated with it. Critically examine.
Kartavya Desk Staff
Topic: Economy: liberalization of the Indian economy
Topic: Economy: liberalization of the Indian economy
Q5. It is essential to approach the internationalisation of the rupee cautiously, considering the potential advantages and risks associated with it. Critically examine. (250 Words)
Difficulty level: Medium
Reference: TH, Insights ias
Why the question: India and Russia have doubled rupee-rouble payments in 2024, says largest Russian bank Key Demand of the question: To critically examine the advantages and risks of internationalising the rupee and the cautious approach needed in the process. Directive word: Critically examine – Investigate the topic in detail, inspect it, and establish the key facts and issues related to it. Explain why these facts and issues are important and their implications, including both positive and negative aspects. Structure of the answer: Introduction: Define the internationalisation of the rupee and provide context regarding its current status and potential. Body: Advantages: Mitigation of currency risk for Indian businesses Reduced need for foreign exchange reserves Increased global stature and respect for the Indian economy Less vulnerability to external shocks Risks and Challenges: Limited international demand for the rupee Absence of full capital account convertibility Potential for capital flight and exchange rate volatility Prerequisites like economic progress and robust financial markets Current Scenario and RBI Recommendations: Current limited convertibility status Short-term and long-term RBI recommendations Integration with global financial systems and market strengthening Reforms Needed: Full convertibility goals and deeper rupee bond markets Encouraging rupee invoicing for trade Currency swap agreements and tax incentives Implementation of Tarapore Committee recommendations Conclusion: Give a balanced conclusion.
Why the question:
India and Russia have doubled rupee-rouble payments in 2024, says largest Russian bank
Key Demand of the question:
To critically examine the advantages and risks of internationalising the rupee and the cautious approach needed in the process.
Directive word: Critically examine – Investigate the topic in detail, inspect it, and establish the key facts and issues related to it. Explain why these facts and issues are important and their implications, including both positive and negative aspects.
Structure of the answer:
Introduction: Define the internationalisation of the rupee and provide context regarding its current status and potential.
• Advantages: Mitigation of currency risk for Indian businesses Reduced need for foreign exchange reserves Increased global stature and respect for the Indian economy Less vulnerability to external shocks
• Mitigation of currency risk for Indian businesses
• Reduced need for foreign exchange reserves
• Increased global stature and respect for the Indian economy
• Less vulnerability to external shocks
• Risks and Challenges: Limited international demand for the rupee Absence of full capital account convertibility Potential for capital flight and exchange rate volatility Prerequisites like economic progress and robust financial markets
• Limited international demand for the rupee
• Absence of full capital account convertibility
• Potential for capital flight and exchange rate volatility
• Prerequisites like economic progress and robust financial markets
• Current Scenario and RBI Recommendations: Current limited convertibility status Short-term and long-term RBI recommendations Integration with global financial systems and market strengthening
• Current limited convertibility status
• Short-term and long-term RBI recommendations
• Integration with global financial systems and market strengthening
• Reforms Needed: Full convertibility goals and deeper rupee bond markets Encouraging rupee invoicing for trade Currency swap agreements and tax incentives Implementation of Tarapore Committee recommendations
• Full convertibility goals and deeper rupee bond markets
• Encouraging rupee invoicing for trade
• Currency swap agreements and tax incentives
• Implementation of Tarapore Committee recommendations
Conclusion: Give a balanced conclusion.