How Is the RBI Promoting Internationalisation of the Rupee?

This article explores the Reserve Bank of India’s proactive response to the United States’ imposition of steep tariffs, doubling duties to 50% on Indian exports. RBI Governor Sanjay Malhotra, speaking at FIBAC 2025, asserted that the central bank stands ready to cushion the economy from potential shocks while advancing the internationalisation of the rupee through local-currency trade.

How Is the RBI Promoting Internationalisation of the Rupee?

RBI is undertaking several concrete steps to elevate the rupee's role in global trade:

1. Local-Currency Trade Agreements
   The RBI has already initiated trade in rupees with four countries: Maldives, Mauritius, Indonesia, and the UAE. These agreements are in operation and aim to reduce exposure to volatile foreign currencies.
    
2. Simplifying Vostro Account Access
   Banks abroad no longer need RBI’s prior approval to open special Rupee Vostro Accounts, enhancing ease of cross-border payments.
    
3. Proposal to Lift Investment Caps
   RBI is seeking permission to remove the 30% cap on investments from SRVAs (Special Rupee Vostro Accounts) into short-term securities. This would improve liquidity and attract greater foreign participation.
    
4. Rupee-based Overseas Lending
   For the first time, RBI has proposed allowing domestic banks to lend in rupees to overseas borrowers—initially focused on South Asian neighbours like Bangladesh, Bhutan, Nepal, and Sri Lanka—to deepen the rupee's trade footprint.
    

These coordinated moves reflect RBI’s long-term strategy: easing trade friction, lowering forex volatility, and gradually building global trust and acceptance of the rupee.

Read More – India-Pakistan War: What Happens To The Rupee's Value?

What Is the RBI’s Strategy to Increase Local Trade?

RBI's strategy centers on reducing dollar dependence and stabilising trade settlement through:

• Currency Derivative Tools
  The RBI has resumed operation in the Non-Deliverable Forward (NDF) market to manage rupee volatility, after previously stepping back from it.
   
• Forex Market Interventions
  To prevent sharp rupee depreciation, RBI has intervened via state-run banks and may permit gradual rupee weakening to offset tariff shocks.
   
• Monetary Easing & Liquidity Support
  Since February, RBI has cut the repo rate by 100 basis points and ensured ample liquidity to support trade and cushion impacted sectors.
   

Together, these steps aim to shield exporters from currency shocks and foster seamless rupee-based international trade.

Why Did the RBI Readjust GDP Growth Estimation by 20 Basis Points After the Announcements of Tariffs in April 2025?

In April 2025, following the initial U.S. tariff announcement, RBI downgraded its GDP growth outlook by 20 basis points to account for anticipated trade disruption.

This proactive adjustment was a risk-management move, reflecting prudence amid mounting uncertainty. The subsequent tariff hike to 50% prompted further caution, even as RBI remains hopeful of minimal ultimate impact—bolstered by structural reforms and ongoing trade deal negotiations.

45% of Export Items Are Outside the 50% Tariff Regime

Nearly 45% of Indian export sectors remain outside the scope of the newly imposed 50% tariffs.

Export Exposure to U.S. Tariffs
 

The table above clarifies that a sizable share of exports is tariff-free, which mitigates the overall economic damage. However, high-risk segments still comprise over half of exports, necessitating targeted support.

What Sectors Could Get Hit by the 50% Tariffs?

Key sectors likely to feel the brunt include:

• Gems and Jewellery
   
• Textiles and Apparel
   
• Shrimps and Seafood
   
• Micro, Small & Medium Enterprises (MSMEs)
   

These export-reliant sectors face heightened risk as they fall squarely under the tariff umbrella.

RBI and the government are collaborating to address impacts through credit support, interest subsidies, sector-specific relief, and export market diversification.

Efforts Made by the RBI to Ease the Slow Economy Since 2024

RBI’s key measures include:
 

1. Repo Rate Cut
   The benchmark repo rate has been reduced by 100 bps since February to revive growth.
    
2. Ample Liquidity Provision
   Liquidity has been bolstered across banking systems to ensure liquidity flows and financial stability.
    
3. Curtailing Inflation
   Retail inflation dropped to 1.55% in July—the lowest since June 2017—giving RBI flexibility to pursue growth-supportive policies.
    
4. Policy Framework Renewal
   RBI initiated a discussion paper on its inflation-targeting framework ahead of its review, signalling a forward-looking monetary strategy.
    
5. Ru currency internationalisation and trade-support measures
   As previously outlined, these strategic steps are all part of the broader economic support plan.
    

Through balanced monetary easing, inflation control, and financial stability, the RBI is steering the economy through uncertain global headwinds.

Also Read - The Role of Government Policies in Shaping Financial Markets

India Has Free Trade Agreements with How Many Countries?

While the RBI Governor labeled ongoing FTA negotiations as a key mitigant, explicit numbers weren’t disclosed in his remarks.

Nevertheless, India currently has FTAs with several countries and regional blocs (like ASEAN, MERCOSUR), and is pursuing new agreements to diversify export markets and reduce reliance on the U.S.

Conclusion

RBI Governor Sanjay Malhotra’s statements at FIBAC 2025 reflect a central bank fully engaged with global uncertainties. India’s economy is being strategically shielded—from moderated GDP forecasts to aggressive rate cuts and liquidity injections, from rupee internationalisation to managed currency flexibility.

With 45% of exports tariff-free, systemic strength bolstered by low inflation, and targeted support for affected sectors, India aims to cushion the blow from punitive U.S. tariffs. Moving ahead, accelerating trade agreements and expanding rupee-based commerce will be crucial in fostering resilience and global economic autonomy.

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