India and Japan Enter into A $75 Billion Swap Contract

February 23, 2019
Capital Market

 

October 29th 2018 marked one more important event that took place between India and Japan. After the meet between the prime ministers of the two countries, it was decided that India and Japan enter into a 75$ Billion bilateral currency swap agreement. This agreement is deemed to strengthen the foreign exchange and capital market in the country. This bilateral swap agreement was a result of serious discussions pertaining to the issues faced by India. Such $75 Billion bilateral agreement is the largest swap agreement in the globe said the Economic Affairs Secretary Subhash Chandra Garg.

This major decision was made during a meet between Prime Minister of India Narendra Modi and the Prime Minister of Japan Shinzo Abe. This agreement ensures the cost of assessing the foreign capital market will be improved for India along with the availability of use of foreign capital when needed during a crisis.

Economists foresee that these bilateral agreements will help India in tapping foreign capital developments better than before. In order to develop an interest in investment in infrastructure, the RBI will relax hedging requirements for Japan.

India and Japan creates history

Finance minister Arun Jaitley tweeted in connection with this news that this swap agreement is 50% higher than the previous swap agreements between India and Japan. It is to be noted that in 2013 Japan had offered a %50 Billion swap agreement and a $3 Billion swap agreement for 2008. These swap agreements depict that such agreed amount of foreign capital will be available to India if the need arises in future. Which also means India can get dollars in exchange for rupees under these agreements. These agreements are considered as a means of short term liquidity when the situation demands. Business analysts also state that the bilateral swap agreement between Japan and India is also a means to boost confidence in the Indian market overseas.

Prime Minister of Japan Abe addressed the media stating that the relationship between India and Japan is one of the most potentials in the globe. Abe further added that A strong Japan benefits India and vice-versa. Joint operations of the army, navy and airforce among the two countries have been fostered by Narendra Modi and Abe by means of cross-servicing agreement.

A super-express railway agreement between India and Japan has been signed in its second phase to further encourage the strong ties between the two countries. Adding to this is the joint infrastructure projects by India and Japan along with Srilanka.

The better future relationship between India and Japan

These swap agreements add a wall of defence surrounding the foreign exchange reserves which accounts more than $300 Billion that the Reserve Bank of India has at its disposal. It is to be mentioned that India had more than
$500 Billion foreign reserves which reduced as the Foreign Portfolio Investors have pulled out more funds. Amidst other Asian currencies, the rupee has depreciated the most which also accounts the high price of crude, increased interest rates of the US and other trade wars.

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