India’s decision to join the Indo-Pacific Economic Framework (IPEF) could be a turning point for trade in the country, but how it uses its unique geopolitical position is critical. A little under a year after the government released the National Logistics Policy (NLP) aimed at strengthening domestic supply chains, this strategic move by India is a rational next step to strengthen international supply chains.
SWIFT & rupee trade
Trade between SWIFT and the rupee SWIFT is currently the most widely used messaging platform for international payments. However, there are concerns that SWIFT could be used as a tool of economic coercion in the same way that sanctions against Iran were used by the United States and the European Union to effectively cut Iran off from the system, making international trade extremely difficult and having a significant impact on the Iranian economy. The West’s influence over the global financial system was further demonstrated by Russia’s removal from the SWIFT system in recent times.
Additionally, as a result of the SWIFT ban, nations have attempted to encourage settlement of international trade in their domestic currencies to avoid becoming victims of this financial instrument in the future. One of the countries leading this effort has been India, which most recently tried to negotiate a rupee-ruble trade deal with Russia without much success, which is understandable given the rupee’s limited external uses. The IPEF presents India with a one-of-a-kind chance to contribute to the expansion of international rupee trade.
The UPI pitch
The UPI argument It is generally acknowledged that, despite the fact that economic superpowers such as Japan, Indonesia, and South Korea have signed the IPEF, India is the closest thing to a regional economic counterbalance to China. As the last drafts of the IPEF understanding are underway, this is the ideal opportunity for India to use its remaining in the locale.
One of India’s most significant contributions to the IPEF could be its Unified Payments Interface (UPI), given the initiative’s economic nature and India’s position as a digital technology leader. Since its launch in 2016, the UPI has processed over 100 billion transactions, making India a leader in digital transactions. In addition to its obvious advantages over SWIFT, UPI’s tried-and-true capacity to handle volumes never before seen could make it a useful tool for increasing supply chain resilience in the Indo-Pacific region.
Because it requires banks to be connected to the network in order to conduct transactions, SWIFT is an unnecessarily complicated system that results in increased costs and inefficiency. Given India’s mostly neutral position in the global order, businesses can use UPI to securely pay customers and suppliers in other countries without having to go through a third party or worry about political pressures. In addition to making it simpler for businesses to conduct business with one another, this may also make doing business less intimidating and less costly. Transactions carried out using UPI take significantly less time than those carried out using SWIFT, which results in lower transaction costs and fees.
In a recent meeting, Russian officials stated that their lack of need for the rupee makes rupee-ruble trade difficult. They even went so far as to say they would prefer payments in yuan, which is a reasonable claim given China’s competitive exports and the trade surplus it maintains with most countries. The bottom line is that nations prefer to hold currencies that can be used to pay for imports, and India’s persistent trade deficits with the majority of nations (including Russia) make the rupee a poor choice.
In light of this, India‘s long-term spillover effects from widespread UPI adoption are, without a doubt, exciting as well. Increased demand for Indian Rupees (INR) and its adoption as one potential reserve currency (similar to the yuan) could result from the lower cost of making international payments and the ease with which transactions can be carried out. Both of these factors can increase the competitiveness of Indian exports and the willingness to trade with India. In addition, UPI’s “platform” nature, which is extremely adaptable, enables the development of additional features or applications that can facilitate trade flows by granting access to financial services like supply chain financing and trade financing.
Under the NLP, India needs to improve its physical infrastructure and its regulatory environment, which it has already begun to do. Presently, it has a remarkable chance to assume a main part globally with the IPEF. India has the potential to contribute to the development of a more prosperous and secure Indo-Pacific region by utilizing its strengths in digital technology and infrastructure as well as its position of “multi-alignment.”