The currency swap agreement, which was signed during the visit of Narendra Modi to Japan, will further strengthen and widen the depth and diversity of economic cooperation between the two countries.
Prime Minister Narendra Modi has signed $75 billion bilateral currency swap agreement with Japanse counterpart Shinzo Abe on Tuesday, in another important measure towards strengthening stability in foreign exchange and improving confidence in the Indian capital markets. The currency swap agreement, which was signed during the visit of Narendra Modi to Japan, will further strengthen and widen the depth and diversity of economic cooperation between the two countries, the Finance Ministry said in a statement on October 29.
“With this arrangement in place, prospects of India would further improve in tapping foreign capital for country’s developmental needs,” the statement said. The agreed amount of foreign capital under this facility can not only be used as and when the need arises, but it will also help to reduce the cost of capital for Indian entities while accessing foreign capital markets.
In the recent past, the flight of capital from the emerging markets, due to the strengthening of the US dollar, has been one of the pressing concerns for many emerging economies. In order to address the issue of outward flow of capital, the Indian government has taken various measures towards keeping its current account deficit (CAD) – which widened to 2.4% of the GDP in April-June – and volatility in rupee in check. Since January this year, the rupee has depreciated about 15% against the US dollar.
Some of the measures taken by the government to attract foreign capital include the review of certain restrictions on FPI investment in debt, promoting exports, hike in customs duty to curtail imports of non-essential items, relaxations in the policy for external borrowings and issuance of offshore rupee bonds (Masala Bonds), among others.
Modi, who is in Japan for the 13th India-Japan annual summit, met his counterpart Shinzo Abe held delegation-level talks and discussed a range of bilateral, regional and global issues including the situation in the Indo-Pacific region. Both the leaders also reviewed significant milestones achieved by both the countries over the last four years.
Meanwhile, the two leaders inked six agreements, including on high-speed train and Naval cooperation. Following talks with Shinzo Abe, PM Modi said Japan investors have announced that they would invest $2.5 billion in India and these partnerships would range from digital to cyberspace, health, defence, ocean to space.