India today stands at a decisive juncture in its financial and economic evolution. The question of capital account convertibility (CAC) — how freely the Indian rupee can move across borders for investment and trade — is not just a technical reform, but a gateway to positioning India as “Bankers to the World.”
This blog lays out a comprehensive set of measures that the Government of India and the Reserve Bank of India (RBI) can adopt to deepen the bond market, enhance financial stability, and establish India as a global banking hub.
Why Capital Account Convertibility Matters
India must take decisive action in capital account convertibility associated with currency conversion. The RBI Governor’s decision for the Clearing Corporation of India to expand infrastructure beyond USD is welcome, but incomplete.
The Tarapore Committee guidelines — still awaiting full implementation — should serve as signposts. External Commercial Borrowings (ECBs), in their current form, should be halted immediately. Instead, Indian issuers must be encouraged to prepay and create equivalent medium-term bonds, preferably listed on exchanges.If executed, India’s total bond market size could rise to ₹40,00,000 crores, offering an attractive alternative to fixed deposits.
Rethinking Savings and Fixed Deposits
A bold policy suggestion is to freeze fixed deposits at 364 days. Savers should be directed instead toward secured bonds issued by central/state governments and financial institutions, with risk-free returns. A new option of annual interest rate contracts can also be introduced.
Expanding the Bond Market
India’s listed bond market has the potential to grow to ₹100,00,000 crores. Deep discount bonds for infrastructure projects—covering up to 80% of project financing—would distribute risk across investors while encouraging active secondary market trading.
Current Accounts in Any Currency
India should allow current accounts in any currency for authorized dealers, with partial use of paper currency and ledger-based technology.
This system would give international entities the ability to deposit safely in India, whether during FDI transitions, strategic exits, or trade surplus investments. It would broaden the capacity of India’s commercial, wholesale, and narrow banks.
The theme is clear:
Credit – Capabilities – Character – Integrity – Security.
India must become a trusted banker to the world.
Treasury Bills and Open Market Rates
In the next six months, the Government of India and RBI should focus borrowing through Treasury Bills only, with exceptional coupon rates to reflect deflationary trends:
7-day T-Bill: 1.25%
14-day T-Bill: 1.50%
46-day T-Bill: 1.75%
91-day T-Bill: 2.00%
180-day T-Bill: 2.25%
364-day T-Bill: 2.50%
RBI should also conduct open market operations worth ₹7,00,000 crores, easing interest rates and aligning them with inflation trends.
Strengthening SLR as a Policy Tool
The proposal emphasizes raising the Statutory Liquidity Ratio (SLR) from 18% to 22% in gradual steps. This would ensure:
– Banks invest in safe international securities (such as Development Bank bonds worth USD 90 billion).
– India secures itself against sovereign repayment risks.
CAC is implemented prudently, ensuring contracts in foreign currencies are securely backed.
A sovereign entity (like Central Bank of India) should be empowered to manage these transactions, supported by partially owned entities.
Currency Convertibility Framework
Key steps for CAC include:
– Accepting deposits in multiple foreign currencies (starting with 25 nations).
– Allowing paper currency exchange at airports, seaports, railway stations, and Indian Post offices.
– Establishing currency chests across major infrastructure points.
– Providing fintech-enabled digital rupee conversions for visitors and NRIs.
– Creating employment for 70,000+ professionals through this ecosystem.
This will make India a fully current account convertible nation for both physical and digital currencies.
Investing in Global Securities
Indian commercial banks must be enabled to invest in foreign government securities, starting with World Bank, ADB, and AfDB bonds.India, as the largest debtor to the World Bank, should instead become an active investor. A framework of US$90 billion in foreign securities under SLR would give India strength and credibility in global markets.
The long-term vision is to position India as a hub for 120+ approved global securities traded in GIFT City and across financial centres worldwide.
Halting ECBs and Encouraging Rupee Finance
The RBI should halt all ECBs immediately, allowing existing ones to be paid at maturity or prepaid with lender consent.Domestic rupee-equivalent finance must replace external borrowing, channelled through Development Finance Institutions. This strengthens sovereignty and reduces vulnerability to external shocks.
Liquidity and Bond Market Development
– RBI should purchase long-term government securities (10–15 years) to ease expenditure burdens.
– Till December 2026, only treasury bills should be issued for net borrowings.
– State governments should be encouraged to issue deep discount bonds worth ₹12 lakh crores to finance capital creation.
– Long-term coupon-bearing bonds should be offered to senior citizens.
Education and Capacity Building
Sustainable CAC requires skilled manpower. Proposals include:
– Establishing an All India Council for Management Education (AICME).
– Affiliating 300 MBA institutes with RBI’s NIBM Pune and global training centres.
– Introducing multilingual contracts and international languages (Spanish, Portuguese, Japanese, German, Dutch) into financial education.
– Extending MBA programmes to 4 years with apprenticeships and hands-on experience (currency chests, fintech training, etc.).
Final Note on SLR Adjustment
If RBI maintains SLR at 18%, the adjustment can still allow 4% of SLR in approved foreign securities, rotating weekly.
This would strike a balance between domestic security and international engagement.
Conclusion
The call is bold but urgent:
India must move toward partial capital account convertibility.
By combining bond market deepening, foreign security investments, strict SLR management, and robust training in banking and finance, India can build trust globally and position itself as Bankers to the World.
The path is challenging, but the rewards — a deeper financial system, stronger global engagement, and higher employment — are well worth the effort.
