The government has decided to set up a task force which will look at the possibility of having currency swap agreements with key trading partners, a move which would help in bridging current account deficit.
The 11-member task force would include representatives from the the commerce ministry, department of economic affairs and financial services, RBI, SBI, CII, Ficci and exporters body FIEO.
"In view of the rising trade deficit and consequent CAD, a need has been felt to examine the role of Currency Swap Arrangement/ Agreements in order to suggest a possible mechanism to address the issue. It has been decided to constitute a Task Force," an official statement said.
The issue came up for discussion during the meeting of Board of Trade which was chaired by Commerce and Industry Minister Anand Sharma. The Task Force examine various types of such arrangements and their implication for Indias trade and financial system besides studying the pros and cons of such pacts the country's commerce. It would also explore the possibility of Currency Swap Agreement between India and identified countries and make recommendations accordingly. "The Task Force may submit its recommendations to the Department of Commerce in four weeks," it said.
Currency swap agreements involve exchange of one currency for another currency. A dollar swap arrangement would help India support the rupee. Swap agreements in US dollar is expected to provide confidence to the market and prevent excess volatility in financial and foreign exchange markets.
Currency swap has emerged as an important derivative tool after the global financial crisis of 2008 to hedge the exchange rate risks.
India has signed currency swap agreements with Japan ($15 billion) and Bhutan ($100 million). China has shown active interest in entering into such an agreement with India, but it is yet to be signed.