ASIAN Development
Bank (ADB) is likely to finalise an agreement with Indian authorities soon
to go for dollar-swap to finance projects in India in the Indian currency.
After approving a $400-million dollar loan for West Bengal to help the state
tide over a debt cycle, ADB is also considering giving loans to another debt-stressed
state, Punjab, next year, sources said. Sources added that the ADB officials
are in touch with the finance ministry officials to go for a dollar-swap agreement.
Under the agreement, the multilateral agency will bring dollars to India and
swap it with banks or financial institutions to get rupee. ADB will, then,
give rupee loan to projects in India and when the loan matures, it will return
the rupee to the bank or financial institution and get back the dollar. The
agreement would help finance projects in India without augmenting currency
inflows into the system. The swap would not increase dollar inflows as the
greenback would be held in the central bank’s reserves. Right now, India needs
dollars, but in future, dollar flow could be much more than requirement, necessitating
the need to finance projects in rupee, officials explained.
In that case, ADB would give a basket of dollars to India and India will give
it a basket of rupees.
Earlier this year, ADB board of directors had approved inclusion of the Indian
rupee in the Trade Finance Program (TFP), which bridges market gaps for trade
finance by providing guarantees and loans to banks to support trade.
Till now, TFP used to cover only transactions denominated in dollars, yen and
Euros.
In the past, similar arrangement by other multi-lateral agencies could not
be preceded, with the deal struck over power reforms. ADB officials said these
issues would be resolved before the loan is approved.
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