12-March-2024-Editorial

INDIA, INDONESIA SIGN PACT TO TRADE IN LOCAL CURRENCIES

The recent Memorandum of Understanding (MoU) between the Reserve Bank of India (RBI) and the Bank Indonesia (BI) marks a significant step towards promoting bilateral transactions in local currencies, particularly the Indian Rupee (INR) and the Indonesian Rupiah (IDR).

This move is aimed at fostering economic ties and trade between the two nations.

MoU between RBI and Bank Indonesia:

• Facilitates bilateral transactions in INR and IDR, covering current account and capital account transactions.
• Enables exporters and importers to invoice and pay in their domestic currencies, promoting the development of an INR-IDR foreign exchange market.
• Expected to boost trade between India and Indonesia and deepen financial integration between the two countries.

India-Indonesia Relations:

Commercial Relations:

• Indonesia ranks as India’s second-largest trading partner in the ASEAN region.
• Bilateral trade volume surged from USD 4.3 billion in 2005-06 to USD 38.84 billion in 2022-23.

Political Relations:

• Both nations played pivotal roles in advocating for independence in Asia and Africa, notably through the Bandung Conference of 1955.
• Adoption of India’s ‘Look East Policy’ in 1991 accelerated bilateral ties, leading to substantial growth.
• Both India and Indonesia are members of prominent international forums like G20, East Asia Summit, and the United Nations.

Cultural Relations:

• Cultural exchanges date back centuries, with the spread of Hinduism, Buddhism, and Islam from India to Indonesia.
• Indonesian art and dramas often draw inspiration from Indian epics like Ramayana and Mahabharata.
• Around 100,000 people of Indian origin reside in Indonesia, particularly in cities like Greater Jakarta, Medan, Surabaya, and Bandung, further strengthening cultural ties.

Efforts for the Internationalization of the Rupee:

• Liberalization of capital markets to increase availability of rupee-denominated financial instruments.
• Promotion of digital payment systems like Unified Payments Interface (UPI).
• Establishment of Special Vostro Rupee Accounts (SVRAs) for settling payments in rupees.
• Currency swap agreements with various countries to facilitate exchange of rupee and foreign currency.
• Signing of bilateral trade agreements to promote cross-border trade and investment.

Balance of Payments (BoP):

• Current Account: Covers flow of goods, services, income, and current transfers.
• Capital Account: Records transactions involving capital assets, including FDI, FPI, and borrowing from foreign entities.
• Forex Reserves: Vital assets held by RBI in foreign currencies, gold, SDRs, and reserve portion in IMF.

Conclusion:

The MoU between RBI and Bank Indonesia signifies a concerted effort to strengthen economic ties between India and Indonesia.

Alongside ongoing initiatives for the internationalization of the rupee and prudent management of balance of payments and forex reserves, this MoU is expected to contribute to the economic growth and stability of both nations.