Approach:

Introduction: Talk in brief about India's FTP 2023 and also about the meaning of the Internationalisation of the Rupee.

Body: Elaborate on the measures taken for the Internationalisation of the Rupee and also suggest possible strategies.

Conclusion: Focus on the overall approach to implementing the strategies and how to move forward.

Answer :

India’s Foreign Trade Policy (FTP) provides the basic policy framework and strategy for promoting exports and trade. It is periodically reviewed to adapt to the changing domestic and international scenarios.

The internationalization of the Indian Rupee (INR) refers to promoting the use and acceptance of the INR as an international currency for conducting trade, investments, and financial transactions beyond India's borders. It involves enhancing the visibility, liquidity, and credibility of the INR in global markets.

Measures taken for the Internationalisation of the Rupee:

1. Expansion of currency swap arrangements: The RBI has entered into bilateral currency swap agreements with other central banks, allowing for the exchange of INR with foreign currencies. This facilitates trade and investment transactions, reducing the dependency on third-country currencies. For example - the Ministry of Commerce, Government of India, has finalized arrangements with some 23 countries with whom India can trade in local currencies including Russia, Japan, Mexico, Saudi Arabia etc.

1. Liberalization of external commercial borrowing (ECB) norms: The government has relaxed restrictions on ECB, allowing Indian entities to borrow in INR from overseas sources. This encourages foreign investors to hold and transact in INR, promoting its international use.

1. Promotion of rupee-denominated bonds: The government has encouraged the issuance of rupee-denominated bonds, known as "Masala bonds," in international markets. This allows foreign investors to invest in INR-denominated instruments and increases the exposure of INR in global financial markets. For example - In 2019, Kerala became the first Indian state to issue Masala Bonds worth Rs. 2,150 crore on the London Stock Exchange.

1. Enhancing offshore rupee markets: The RBI has taken steps to develop and deepen offshore rupee markets, such as Non-Deliverable Forward (NDF) markets. These markets allow for trading in INR outside India, facilitating hedging and speculation activities.

1. Facilitating cross-border trade settlements: The government and RBI have implemented measures to promote the use of INR for cross-border trade settlements. This includes encouraging exporters and importers to settle their transactions in INR, reducing the reliance on foreign currencies.

1. Liberalizing capital account transactions: The RBI has progressively relaxed restrictions on capital account transactions, allowing individuals and entities to hold and transact in foreign currency. This liberalization facilitates cross-border transactions and enhances the attractiveness of the Indian Rupee as a global currency.

To further enhance the global acceptance of the INR, some possible strategies could include:

1. Strengthening macroeconomic fundamentals: Maintaining a stable and robust macroeconomic environment, including low inflation, fiscal discipline, and sustainable growth, can enhance the credibility and attractiveness of the INR as an international currency.

1. Improving liquidity and depth of INR markets: Developing deep and liquid onshore and offshore INR markets, including bond markets and derivatives, can attract more global participants and increase the liquidity of INR.

1. Promoting financial market reforms: Implementing reforms to enhance the efficiency, transparency, and regulatory framework of the financial markets can instil confidence in global investors and encourage the use of INR.

1. Enhancing financial infrastructure: Investing in modern payment systems, clearing mechanisms, and settlement platforms can facilitate smoother and faster transactions in INR, reducing transaction costs and increasing convenience for market participants.

1. Encouraging bilateral and regional trade agreements: Collaborating with trading partners to promote the use of INR in bilateral and regional trade agreements can expand the acceptance and circulation of INR in international transactions.

1. Providing incentives to exporters: The government can provide incentives to exporters who transact in Rupees. These incentives include benefits such as lower interest rates on loans and access to credit facilities.

Overall, a comprehensive approach that involves supportive policies, market development, and building trust in the stability and reliability of the INR can contribute to its wider international acceptance.