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• India is one of the world’s fastest-growing major economies, poised for significant growth and development. To harness this potential, the Reserve Bank of India (RBI), as the nation’s central bank, plays a crucial role in shaping and steering the country’s financial and economic policies.

RBI's Vision for the Future

• As the RBI approaches its centenary year, it has articulated a series of aspirational goals to ensure it remains "future-ready" to support India's burgeoning economy.
• This vision is outlined in the document “Aspirational Goals for RBI@100 in a Multi-Year Time Frame,” which emphasizes several strategic objectives aimed at enhancing India’s financial system and its global footprint.

Aspirational Goals for RBI

Overview

To position itself as a model central bank and support India's economic trajectory, the RBI has set forth ambitious targets, including:

• Capital account liberalisation
• Internationalisation of the Indian rupee (INR)
• Universalisation of the digital payment system
• Globalisation of India’s financial sector

Key Proposals

Rupee Internationalisation

• Cross-Border Transactions: The RBI proposes enabling the availability of the rupee to non-residents to facilitate cross-border transactions.
• Rupee Accounts for Non-Residents: Enhancing the accessibility of rupee accounts for persons resident outside India (PROIs) is a key goal.
• Non-Resident Deposits: A calibrated approach towards interest-bearing Non-Resident Deposits will be adopted.
• Promoting Indian MNCs: The RBI aims to support Indian multi-national corporations (MNCs) and global brands through overseas investments.

Capital Account Convertibility

India has yet to fully open its capital account, which would allow free flow of capital in and out of the country.

• Capital account convertibility refers to the freedom to convert the rupee into any foreign currency and vice versa for capital transactions.
• Preconditions (Tarapore Committee): Achieving this goal requires:
• Fiscal consolidation
• Inflation control
• Low level of non-performing assets (NPAs)
• Low current account deficit
• Strengthening of financial markets

Steps Toward Internationalisation of the Rupee

• RBI Working Group Recommendations: The group has suggested a range of short to long-term measures to accelerate the pace of rupee internationalisation.

Digital Payment Systems

• Domestic and Global Goals: The RBI’s agenda includes:
• Internationalisation of India’s Payment Systems (UPI, RTGS, NEFT).
• Participation in bilateral and multilateral payment system linkage projects.
• Increasing domestic usage of digital payments.
• Phased implementation of Central Bank Digital Currency (e-Rupee).

Financial Sector Globalisation

• Expansion Goals: Plans include:
• Expanding banking domestically in line with national growth.
• Positioning 3-5 Indian banks among the top 100 global banks.
• Supporting the International Financial Services Centres Authority (IFSCA) to enhance GIFT City as a leading international financial centre.

Monetary Policy Framework

• Review Proposals: The RBI aims to:
• Balance price stability and economic growth from an Emerging Market Economy (EME) perspective.
• Refine monetary policy communication.
• Address spillovers from private and public debt overhang in systemically important economies.

Climate Change Initiatives

• Guidance for Regulated Entities (REs): The RBI proposes:
• Stress testing asset portfolios for climate change impact.
• Strengthening payment systems’ resilience to climate risks.
• Proposing climate risk disclosure norms for REs.
• Providing inputs for government taxonomy on climate risks.

Short-Term Recommendations

• RBI Working Group Proposals: These include:
• Adopting a standardised approach for bilateral and multilateral trade arrangements in rupee and local currencies.
• Encouraging the opening of rupee accounts for non-residents.
• Integrating Indian payment systems with other countries for cross-border transactions.
• Fostering a global 24×5-rupee market.
• Recalibrating the foreign portfolio investor (FPI) regime.

Medium-Term Recommendations (2-5 Years)

• RBI Group Suggestions: These focus on:
• Reviewing taxes on rupee masala bonds.
• Promoting the international use of Real Time Gross Settlement (RTGS) for cross-border transactions.
• Including Indian Government Bonds in global bond indices.

Conclusion

• The RBI’s strategic plans aim to position it as a model central bank of the global south, continually updating its goals to adapt to the dynamic global environment.
• Through these initiatives, the RBI intends to bolster India’s financial system, ensuring it is robust, inclusive, and globally integrated.

MUST READ ARTICLES:

https://www.iasgyan.in/daily-current-affairs/internationalisation-of-rupee#:~:text=Convertibility%20can%20be%20partial%20or,to%20various%20regulations%20and%20limits.

https://www.iasgyan.in/sansad-tv-air-summaries/global-trade-local-currency

PRACTICE QUESTION Q. Discuss the strategic plans of the Reserve Bank of India (RBI) aimed at positioning it as a model central bank of the global south. How do these plans intend to adapt to the dynamic global environment, and what are the key challenges and opportunities associated with their implementation?