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.

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.)

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.

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.

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?