The proposal to integrate the capital markets of Singapore and India as part of a comprehensive economic co-operation agreement might require a review as the Reserve Bank of India seems to be not in favour of complete externalisation of the Indian currency.
According to sources close to the development, the Indian central bank is understood to have expressed its unwillingness over the proposal on two counts.
It is of the view that such an agreement with Singapore will only augment the financial sector's activities leading to the externalisation of the Indian currency.
This might lead to slippages in the monitoring of the rupee as a currency. Even though the rupee is traded in the non-deliverable forwards market, it is not the regulated route and thus falls out of the purview of legal validity.
Moreover, the world trade agreement encompasses trade talks for the entire globe under which market access in various countries is one of the main items on the agenda.
As per the prescription laid out by the current account convertibility report, the rupee is not yet mature to face full convertibility.
There is also the fear that such a move will enhance speculative activities, which will give rise to artificial volatility to the Indian markets as well.
The depth and volume of Indian foreign exchange market is not very high compared with the global scale of activities. Around 60 per cent of Singapore's outward investment goes into financial services and only 15 per cent goes towards manufacturing.
The other important sectors where Singapore -based firms invest include commerce, real estate and business services. Taking forward the agreement, the Singapore Stock Exchange had earlier initiated measures to invite Indian companies to list their shares on the exchange.
India and Singapore are also in the process of negotiating flexible sectoral caps on foreign direct investment and investment protection guarantees on inward inflows from either countries.
In an initiative taken by the erstwhile NDA government, India was likely to provide duty-free status to certain imports from Singapore under the comprehensive economic co-operation agreement between the two countries.
The commerce ministry was also contemplating investments in the area of shipping, aviation and special economic zone in return for greater market access in Singapore as part of the market integration between India and Singapore.