Context:
RBI unveiled Strategic Action Plan for 2024- 25 for Internationalisation of Indian Rupee (INR).
Action Plan Strategies:
- Permitting opening of INR account outside India by Persons resident outside India (PROI)
- INR lending by Indian banks to PROI
- Enabling Foreign Direct Investment and Portfolio Investment through Special Non-Resident Rupee (SNRR) and Special Rupee Vostro Account (SRVA).
What is SNRR and SRVA?
SNRR Account:
- Any PROI, having a business interest in India, can open SNRR account for purpose of putting through bona fide transactions in rupees.
- SNRR accounts are usually allowed for specified transactions in trade, foreign investments, External Commercial Borrowings etc.
SRVA Account:
- SRVA is an additional arrangement to existing system that uses freely convertible currencies and works as a complimentary system.
- For opening SRVA, prior approval of RBI is required.
What is Vostro and Nostro?
- Vostro (Latin: Yours) Account: A bank account that a foreign bank at a domestic bank in the domestic bank’s currency. E.g. HSBC Vostro account is held by SBI in India (Rupees).
- Nostro (Latin: Ours) Account: A bank account that a bank holds in a foreign country’s currency at another bank in that country. E.g. SBI’s account with Bank of America in US (Dollars).
Internationalisation of Rupee:
- Involves increasing use of the local currency (Rupee) in cross-border transactions.
- To be accepted as an International currency, INR should be widely used in International transactions, easily convertible and country should have a stable financial market.
- Denotes adopting full capital account convertibility, i.e., freedom to convert local financial assets into foreign financial assets and vice versa.
- Benefits of Internationalisation of Rupee –
- Promotes the rupee for import and export trade, current and capital account transactions.
- Reduces dollar demand and strengthens INR.
- Reduces cost of doing business and improves their competitiveness.
- Reduced need for holding foreign exchange reserves.
- Reduced Vulnerability to External Shocks.
Source: Economic Times
Previous Year Question
Which one of the following situations best reflects “Indirect Transfers” often talked about in media recently with reference to India?
[UPSC Civil Services Exam – 2022 Prelims]
(a) An Indian company investing in a foreign enterprise and paying taxes to the foreign country on the profits arising out of its investment.
(b) A foreign company investing in Indian and paying taxes to the country of its base on the profits arising out of its investment.
(c) An Indian company purchases tangible assets in a foreign country and sells such assets after their value increases and transfers the proceeds to India.
(d) A foreign company transfers shares and such shares derive their substantial value from asset located in India.
Answer: (d)
