The evolution of the forex market in India can be traced back to the early 1970s, when the Indian government abolished the fixed exchange rate system and introduced a floating exchange rate regime. This move was part of a broader set of economic reforms aimed at liberalizing the Indian economy and promoting international trade and investment.
In the early years of the floating exchange rate regime, the forex market in India was relatively small and dominated by the state-owned banks. However, as the Indian economy began to open up and foreign investment started to flow in, the demand for foreign exchange grew rapidly. This led to the emergence of a number of private sector banks and financial institutions that began to offer forex services to their customers.
The 1990s saw further liberalization of the Indian economy, with the government removing restrictions on foreign investment and allowing greater flexibility in foreign exchange transactions. This led to a significant increase in the volume of forex transactions in India, and a corresponding growth in the size and sophistication of the forex market.
In 1999, the Reserve Bank of India (RBI) set up the Clearing Corporation of India (CCIL) to provide a centralized platform for clearing and settlement of forex transactions. This move helped to improve transparency and efficiency in the forex market, and paved the way for the introduction of new products and services such as currency futures and options.
In 2008, the RBI allowed the introduction of currency futures trading on stock exchanges, opening up a new avenue for traders and investors to participate in the forex market. The following year, the RBI also allowed the introduction of currency options trading, further expanding the range of products available in the market.
Today, the forex market in India is a vibrant and dynamic market, with a wide range of participants including banks, financial institutions, corporates, and individual traders. The market operates under the oversight of the RBI, which sets the rules and regulations governing forex transactions in the country. The introduction of new products and services, along with continued growth in international trade and investment, is expected to drive further expansion of the forex market in India in the years to come.