India and Japan Renew Bilateral Swap Arrangement: Strengthening Financial Ties Under a Bilateral Swap Arrangement (BSA), any two countries enter into a swap arrangement of their local currencies for a certain number of US Dollars. The arrangement assists in stabilizing foreign exchange reserves and maintaining financial stability and investor confidence. BSAs provide foreign capital whenever required, this agreement also provides financial security during economic distress and ensures financial stability.
India and Japan enjoy complimentary economic and strategic cooperation that includes finance. The Bilateral Swap Arrangement was intended basically to provide financial assurance to complement investor confidence. The first major deal was signed during Indian Prime Minister Modi’s trip to Japan. Under this arrangement, India had access to a $75 billion swap facility with both the countries, showing a mutual trust and cooperation that exist between the countries, which help in fostering growth and economic development and sustainability in both the countries.
The Bilateral swap agreement acts as an assured source of capital for India in times of balance of payments or foreign exchange liquidity problems. It also protects the Indian Rupee from speculative pressures and enhances the Reserve Bank of India’s (RBI) capacity to manage fluctuations in the exchange rate. In Addition To Securing Financial Stability Through Funding, The Agreement Also Promotes Current And Future Infrastructure Investments That Are Critical To Sustained Economic Growth And Employment In Both Countries.
India-Japan have renewed their Bilateral Swap Arrangement on February 28, 2025, if the two countries showing their commitment toward collaborating in the field of finance. The BSA was amended and restated by Bank of Japan, true for the Japanese Minister of Finance, and. Reserve Bank of India. The agreement maintains the original size of $75 billion in US Dollars for the bilateral exchange in local currencies.
The renewal reflects the shared vision of India and Japan to enhance financial security and lend support to global economic stability. The two countries agree that the BSA will reinforce the existing financial safety net, while facilitating further development of the financial partnership between the two countries. This shall also ensure that India has a source of liquidity at times of economic uncertainty or volatility in the foreign exchange markets. In this sense, the signing of an updated BSA marks an important step at a time of uncertainty in the global economy, with US interest rates rising and capital flowing away from emerging markets. The agreement enhances the access of Indian entities to foreign capital markets with greater certainty, which would contribute to reduction in cost of capital to Indian entities. It also helps in building the country’s foreign exchange reserves and manages the Current Account Deficit (CAD) by making available the necessary foreign exchange whenever required.
Also, India has been taking measures to attract foreign investment and fighting rupee volatility. The measures include ease of borrowing from outside, issuance of offshore rupee bonds (also known as Masala Bonds), easing restrictions on Foreign Portfolio Investment (FPI) in debt, and promoting exports. The BSA is a key tool in India’s broader economic policy making framework for an economy that is immune to external pressures. The extension of India-Japan Bilateral Swap Arrangement is also a crucial economic milestone in the two countries’ partnership. The BSA is a vehicle for deepening financial cooperation and access to foreign currency liquidity that supports stability in both the region and globally. In a world of increasing economic interdependency, having financial safety nets is paramount for continued growth, and in this context, these are very important for the Indian endeavour.
RBI Circular- https://www.rbi.org.in/Scripts/BS_PressReleaseDisplay.aspx?prid=59870