On March 16, 2023, the High Commission of India released a statement that Tanzania-India can now trade on their currencies.
In the statement the Indian High Commission said that “banks and businesses have the opportunity to make full use of the new framework to enable seamless payment in domestic currencies.”
This is a good move between Tanzania and India to take on trade, and this can reduce their dependence on the US dollar.
Tanzania-India ties have evolved into a modern and pragmatic relationship with sound political understanding, diversified economic engagement, people-to-people contacts in education and healthcare, and capacity-building development partnerships.
Between April 2021 and March 2022, India’s exports to Tanzania stood at $2.3 billion (about Sh5.3 trillion) and imports from the East African nation were quoted at $2.2 billion (about Sh5.1 trillion), according to the report by Ministry of Investment, Industry and Trade .
Also, according to the International Trade Centre, Tanzania’s export to India is estimated to be more than $107 million in recent years. In comparison, the total value of India’s exports to Tanzania is more than $3.5 billion.
This deficit is quite large, with India exporting significantly more goods to Tanzania than it imports from Tanzania.
Tanzania and India are working to reduce their trade deficit through various measures such as export promotion, trade diversification and trade agreements that can promote balanced trade
Tanzania and India trade various goods and services. Some major items that Tanzania exports to India include agricultural products such as cashew nuts, coffee, tea, and spices; minerals such as gold, diamonds, and tanzanite; textiles, clothing, and leather products; and timber and wood products.
On the other hand, India exports a range of goods and services to Tanzania, including pharmaceuticals and medical equipment; machinery and equipment; vehicles and spare parts; chemicals and fertilisers; and textiles and clothing.
In addition to these goods, both countries trade in tourism, education, and professional services.
Several economic impacts on both countries. Here are some potential effects:
One is reduced transaction costs: Currently, most trade between Tanzania and India is conducted in US dollars.
If the two countries were to trade in their own currencies, it could reduce transaction costs associated with currency exchange and reduce the need for foreign exchange reserves.
Two, increased trade: Trading in local currencies could also increase trade between the two countries. This would make it easier for businesses to conduct transactions and reduce the risks associated with currency fluctuations.
However, trading in local currencies could expose businesses to exchange rate risks. This is because the value of each currency would be subject to market forces, which could lead to fluctuations in the exchange rate.
Also, if Tanzania and India were to trade in their own currencies, it could impact inflation. This is because the exchange rate between the two currencies would be subject to market forces, which could change the relative prices of goods and services.
Overall, trading in local currencies could have both positive and negative economic impacts on Tanzania and India.
Trading in local currencies will increase investment in Tanzania, trade between Tanzania and India, and strengthen economic ties between Tanzania and India.
Deogratius Kalulu is studying for a Master’s in Economics and Management at Saint Petersburg State University in Russia. He can be reached via email@example.com. These are the writer’s own opinions and do not necessarily reflect the viewpoints of The Chanzo Initiative. Do you want to publish in this space? Contact our editors at firstname.lastname@example.org for further inquiries.