India’s rupee trade settlement mechanism, a means of using rupees instead of dollars and other big currencies for international transactions, is attracting interest from more countries, news agency Reuters has reported. The report, quoting two sources and an official document, added that Tajikistan, Cuba, Luxembourg and Sudan have begun talking to India about using the mechanism.
In July, the Reserve Bank of India (RBI) had asked banks to put in place additional arrangements for export and import transactions in Indian rupees in view of the increasing interest of the global trading community in the domestic currency.
The rupee trade settlement mechanism has already been used by Russia following the imposition of sanctions on Moscow over the Ukraine war.
The government is looking to bring countries that are short of dollars into the mechanism, said a government official and an industry source aware of the development. The sources declined to be named, as the matter is confidential, according to the Reuters‘ report.
The four countries have shown interest in opening special rupee accounts, called vostro accounts, but partner banks in India have not yet provided those facilities, documents showed. Opening of these accounts needs approval from the Reserve Bank of India.
Mauritius and Sri Lanka have also shown interest, and have seen their special vostro accounts approved by the RBI, documents showed.
India’s central bank has given approval to banks to open 12 vostro for trade in rupees with Russia, according to the document. Six other accounts, including five for trade with Sri Lanka and one for trade with Mauritius have been authorised, the same document showed.
Queries sent to the federal finance ministry, commerce ministry and RBI remained unanswered, according to the Reuters’ report.
Talks with Gulf Nations
India continues to discuss denomination of trade in rupees with larger trading partners, including key oil suppliers Saudi Arabia and United Arab Emirates.
Details of potential rupee-dirham trade mechanism are being firmed up by the central banks of India and UAE, a second government official said, requesting anonymity. Talks with Saudi Arabia on a rupee-riyal trade mechanism also continue, the government official added.
The UAE and Saudi Arabia are talking through ways to invest Indian rupees they earn as part of these transactions, as the gulf nation’s exports to India exceed imports from it.
“We have presented the option of investing additional rupees in Indian markets,” the official said.
As part of the rules issued earlier this year, the Indian central bank has allowed for any rupee holdings to be invested in government securities.
In November, the Directorate General of Foreign Trade (DGFT) also notified norms to allow exporters to avail incentives under the foreign trade policy, even on realisation in rupees. The DGFT, under the commerce ministry, has already allowed invoicing, payment and settlement of exports and imports in Indian rupee, a move aimed at facilitating trade in the domestic currency.
“The Government of India has made suitable amendments in the Foreign Trade Policy and Handbook of Procedures to allow for International Trade Settlement in Indian Rupees (INR) i.e., invoicing, payment, and settlement of exports/imports in Indian Rupees. Accordingly, the Directorate General of Foreign Trade (DGFT) had earlier introduced Para 2.52(d) vide Notification No. 33/2015-20 dated 16.09.2022 to permit invoicing, payment and settlements exports and imports in INR in sync with RBI’s A.P. (DIR Series) Circular No.10 dated11th July 2022,” the DGFT notification had said in November.
(With Inputs From Reuters)
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