With the current account deficit (CAD) — the gap between inflows and outflows of foreign exchange — coming down to a comfortable level to 1.2% of GDP in the second quarter of 2013-14, the government has decided to glow slow in pushing for imports in rupee.
“The government will now go slow in pushing trade in rupee and the main reason for this is CAD, which is now at a very comfortable level, there is no alarm anymore,” a senior government official who refused to be identified told HT. Moreover, with general elections just three months away, the government is looking at larger issues, official sources said.
India currently pays in dollars for most of its oil imports and any fluctuation in the rupee-dollar rate as well as global oil prices have a direct impact on the country’s economy.
Under a plan worked out by the government, it was proposed that by making payments in rupee, as much as $10-12 billion (Rs 62,000-72,400 crore) can be saved in the oil import bill, thereby helping reduce CAD.
Payment for oil imports from some other oil-rich nations in West Asia including Iran as well as Syria were proposed to be made in rupees. However, with CAD coming down to a comfortable level and elections round the corner, the plan has been put in the backburner.
India paid about $144.29 billion (Rs 8.9 lakh crore) in 2012-13 for importing crude oil and this year’s outgo is projected at $160 billion (Rs 9.9 lakh crore). Hence, the government, to save on its precious foreign exchange reserves, had planned payments for oil imports in rupee — a move that can help India cut its ballooning oil import bill and a burgeoning CAD that touched a high of 4.8% of GDP in 2012-13.
China has managed to go ahead with expansion of trade in its own currency, which has also boosted its acceptability globally.
Exploring the possibilities of oil trade in local currencies with oil-rich nations was identified as one of the directions by the petroleum ministry in consultation with the finance ministry and the Prime Minister’s Office (PMO).