The Indian Economy Blog

December 11, 2007

World Bank Loan In Rupees

Filed under: Banking,Fiscal policy,Infrastructure,Monetary policy — Pragmatic @ 9:23 pm

likely for the Maharashtra government.

The BBC reports that the World Bank is considering the first ever proposal for a loan of $3.5 billion to be disbursed and repaid in rupees and not the US dollar. This is being done to ostensibly counter the fluctuating rupee- dollar rate. However, it needs no saying that a continually strengthening rupee and forecasts of a double-digit Indian economic growth make the proposal extremely lucrative for the World Bank.

The Maharashtra state government is seeking a loan worth some $3.5bn but is concerned about the fluctuations in the value of the dollar.

If approved, it would be the first time the World Bank has agreed to a such a loan in rupees.

The idea is that the loan would be sanctioned in dollars, but would be handed over in rupees.

All repayments would be in rupees too.

This would prevent any changes in the amount to be repaid caused by fluctuating exchange rates. [BBC]

16 Comments »

  1. [...] Cross-posted at the Indian Economy Blog [...]

    Pingback by Pragmatic Euphony » Blog Archive » World Bank loan in Rupees — December 11, 2007 @ 9:28 pm

  2. Guess who will be the winner in this arrangement, given all the estimates that INR will appreciate in the middle term.

    Comment by Spiff — December 12, 2007 @ 9:19 pm

  3. Maharastra government will be the looser. That shows how our governments work.

    Comment by venkat — December 13, 2007 @ 6:35 pm

  4. What will be the condition of export market in India if value of rupees will increase in this manner..???
    Indian govt and RBI should take quick action on it…

    Comment by Sumit Sriwastaw — December 14, 2007 @ 6:35 pm

  5. The World Bank seems quite desperate these days. Nobody wants their money. African countries get cheaper aid from China without any “conditionalities” and “advice”. Hopefully this loan comes without any “advice”.

    Comment by HmmBut — December 20, 2007 @ 4:51 am

  6. Wow…now that is some news! This goes on a long way to prove how strong ruppee has become, in the world economy!!

    Comment by Shayon — December 28, 2007 @ 3:15 pm

  7. Pragmatic

    I don’t get it.

    Who asked for the loan in rupees instead of dollars — the World Bank or the Maharashtra state government?

    The blog post and the BBC article don’t say much re this except for the line about “The Maharashtra state government …is concerned about the fluctuations in the value of the dollar.”

    Surely, given that the rupee is projected to appreciate, the Maharashtra government should be looking to borrow in dollars rather than rupees?

    Comment by Prashant — December 31, 2007 @ 1:27 am

  8. The World Bank is taking on the currency risk (perhaps the gain too). The rupee has gained new respect as a transactional currency. Anyway I don’t think this signifies anything related to the rupee. This actually signals the increased bargaining power of borrowers vis a vis the World Bank.

    Comment by HmmBut — December 31, 2007 @ 4:14 am

  9. @Prashant:

    It seems from the report that the loan was asked in dollars by the Maharashtra government. I agree that if the present trends continue, it ought to benefit the World Bank rather than the Maharashtra government.

    The important point to note that this is the first time that the World Bank is disbursing a loan, that is not being accounted in dollars.

    On another note, a very happy new year to you and all the co-bloggers at the IEB.

    Comment by Pragmatic — January 1, 2008 @ 3:51 pm

  10. MH govt. isn’t exactly a loser in this deal.

    A loan that has to be repaid in dollars is a commitment to buy dollars (a currency of another country, whose global value is not impacted by us much) at a future date, and there is a risk associated with that (external, as well as internal). A loan that has to be repaid in rupees virtually guarantees that the loan will be repaid regardless of the state of Indian economy (guess who prints the rupees?), and therefore reduces the risks for us. These are theoretical points, of course (and barely scratching the surface).

    The real signal here is that the rupee is being considered as a currency stable enough to be accepted as a currency for international transactions. It can have far-reaching consequences, going well beyond repayment of international loans. There are nuances within nuances here as well, but on the whole a rupee-denominated loan is a good thing for India, IMO.

    I was recently telling someone that the real sign of India’s “arrival” would be that currency exchange kiosks abroad would start accepting rupees :) That day is still quite far, but a rupee-denominated loan is the kind of thing I would assume the first steps to be like.

    Comment by Vivek — January 3, 2008 @ 6:47 pm

  11. Yeah no currency risk for the Maharashtra govt.

    I don’t think the Rupee is being accepted as a stable currency. The World Bank is extremely desperate to give out any sort of loan. Nobody wants their money because China gives money for less interest and without too many strings attached (this is true for many African countries.)

    Comment by HmmBut — January 4, 2008 @ 4:49 am

  12. Respected sir,

    As a citizen of india i want to contribute some money towards our indian government loan to world bank. please tel me to which name i should send my D.D/chq.

    Regards,
    karthik.

    Comment by karthik — January 8, 2008 @ 7:18 pm

  13. Definitely looks like some desperation on the part of World Bank…great news for India though

    Comment by Erica Jones — February 15, 2008 @ 10:00 pm

  14. The idea is that the loan would be sanctioned in dollars, but would be handed over in rupees. All repayments would be in rupees too. This would prevent any changes in the amount to be repaid caused by fluctuating exchange rates.

    Comment by plastik — February 29, 2008 @ 1:36 pm

  15. When loan taking in USD form, repayment should be in USD form. Whatever fluctuation happen in rupee, it does not manner.

    Comment by shank — September 17, 2008 @ 6:01 pm

  16. What will be the condition of export market in India if value of rupees will increase in this manner..???
    Indian govt and RBI should take quick action on it

    Comment by kop — October 19, 2008 @ 11:01 pm

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