With a view to mitigate short term balance of payment problems, the government on Thursday approved a proposed currency swap agreement with Japan to exchange $3billion. The centre will authorise the Reserve Bank to sign an agreement with Bank of Japan to exchange $3 billion against rupee or yen to safeguard economy from future balance of payment of crisis.

“It is an additional arrangement outside IMF to meet for short term liquidity in dollar during a balance of payment crisis,” a spokesperson said after the Cabinet meeting. In August 2007, during the visit of then Japanese prime minister Shinzo Abe to New Delhi, India and Japan had agreed to sign an agreement on currency swap, which will add to a regional network of such accords to provide emergency financial liquidity to either or both parties in times of currency market or other turbulence.

Sources said with around $300 billion forex reserves, there is distinct possibility that provisions of proposed agreement would be ever operationalised in near future, but it will provide a cushion to the government to face any financial crisis like the one happened in south-east Asian Countries in late 90s. As per the proposed agreement, India and Japan will help each other if their currencies were to come under the attack of speculators. Japan has swap deals with other Asian countries .

In some cases, the swap is one way, while two-way in others. In another government decision taken today, it approved changes to the India-Singapore Comprehensive Economic Cooperation Agreement deleting 16 items from the approved list that qualifies for duty elimination. Under the changes in the Comprehensive Economic Cooperation Agreement (CECA), given ex-post-facto approval by the Cabinet, 14 items were shifted to the category of sensitive track which protects domestic producers against tariff-free imports.