India and Japan have decided to enter a $75 billion currency swap agreement, a move that is expected to stabilise and bolster the confidence of forex and capital markets in the country.
“With this arrangement in place, prospects of India would further improve in tapping foreign capital for country’s developmental needs,” the Finance Ministry said in a statement on October 29.
The swap arrangement is 50 percent higher than what it was the last time in 2013.
The announcement comes after Prime Minister Narendra Modi met Japan PM Shinzo Abe in Yamanashi for the 13th India-Japan annual summit on October 28.
The agreement is also expected to bring down the cost of capital for Indian entities while accessing foreign capital market.
The decision is yet another step to address the issue of outward flow if foreign capital from the country. The government has already taken steps to rein in the slide of rupee and contain current account deficit (CAD), which has widened to 2.4 percent of the GDP in April-June.
Towards attracting foreign capital, the government has also relaxed policy for external borrowings and issuance of offshore rupee bonds and reviewed certain restrictions on FPI investment in debt. Customs duty for non-essential items was also hiked to curb imports.