The Union Cabinet on Thursday approved a $75 billion currency swap deal between India and Japan to assist each other "in times of difficulty". It also granted setting up of an advanced single window to boost bilateral investments.
Approving the proposed agreement for Bilateral Swap Arrangement (BSA) between India and Japan, the Cabinet authorised the Reserve Bank of India (RBI) to sign the deal with the Bank of Japan for a maximum amount of $75 billion.
"The swap arrangement is an agreement between India and Japan to essentially exchange and re-exchange a maximum amount of $75 billion for domestic currency, for the purpose of maintaining an appropriate level of balance of payments for meeting short-term deficiency in foreign exchange," the Finance Ministry said in a statement.
The objective of a currency swap is to hedge exposure to exchange rate risks as at the end of the deal the local currencies are again swapped using the same exchange rate. It also helps in saving the cost of borrowing a foreign currency.
"The BSA is a very good example of mutual cooperation between India and Japan for strategic objective of assisting each other in times of difficulty and for restoring international confidence. This facility will enable the agreed amount of capital being available to India on tap for use.
"Also, with this arrangement in place, prospects of Indian companies would improve in tapping foreign capital as there would be greater confidence in the stability of the country's exchange rate.
"Availability of such swap line to tide over difficulties arising out of balance of payment would deter speculative attacks on the domestic currency and greatly enhance the capability to manage exchange rate volatility," the statement said.
Further, the Cabinet approved an MoU between the two nations on development of Advanced Model Single Window and its operationalization in Central and state governments in India for taking necessary administrative procedures for business operations.
It will aim to develop a structure in which those procedures are completed in an expeditious manner, so as to "accelerate India's effort to promote ease of doing business in India."
"The 'Advanced Model Single Window' is based on the best practices in and outside India, with measurable parameters and identify possible obstacles for establishment of the Single Window in India. It will thus, facilitate investments," the Ministry said in another statement.
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