NEW DELHI: India has settled international trade worth over $2.5 billion in rupee after the Reserve Bank of India (RBI) facilitated this in July last year, according to a senior official. Much of the trade settlement in rupee has been with Russia, Sri Lanka and three-four other countries, he said.
Though this shows a pick-up in rupee trade, the pace is much below expectations. After the RBI introduced the mechanism for the rupee-denominated settlement of foreign trade on July 11 last year, trade experts had pegged rupee-denominated exports to rise to $8-10 billion.
Strong demand for Indian goods from Russia after the western sanctions on that country was expected to drive rupee-rouble trade arrangement in big way.
As many as 106 Special Rupee Vostro Accounts (SRVA) have so far been opened by banks from 22 countries in Indian banks.
Until the RBI introduced the rupee trade, invoicing and payment for international trade in rupee was restricted to trade with Nepal and Bhutan. While most of India’s trade with other countries is settled in the US dollar, much smaller amounts of trade are settled in other fully convertible currencies such as euro, the Sterling Pound, and yen. The RBI move was a part of a policy to reduce the dependence on the dollar as India gains in stature on the global economic landscape. The move is also being seen in the context of the Global South to try and undermine the hegemony of the dollar, which is still the main global reserve currency.
Following the RBI’s move Foreign Trade Policy was amended to allow for international trade settlement in rupees.
The countries whose banks have opened vostro accounts in Indian banks include Russia, Germany, Singapore, Oman, Bangladesh, UK. Kenya and Israel.
India-Russia trade has zoomed since the petroleum crude entered the picture. Of the total $46.2 billion of imports, around $31 billion was crude. India’s exports to Russia during that period were $ 3.1 billion. As there are no sanctions on oil trade with Russia, settlement of that trade is happening in international currencies. “Some non-oil trade with Russia is being settled in local currencies,” the official said
Sri Lanka has included Indian rupee in its list of designated foreign currencies while with Bangladesh a new mechanism has been launched in July to settle trade in Indian rupees.
India’s exports to Sri Lanka were $5.1 billion in 2022-23 while imports were $1 billion.
Bangladesh is the fifth largest export market for India, accounting for $11.6 billion of exports last financial year. India is the second biggest source of imports just behind China. Biggest exports from India are electric power, cotton yarn, petroleum fuels and wheat. With the eastern neighbour facing foreign currency shortage for the past year, local currency trade local currency trade looks promising and will ease some pressure.
Significant part of the trade with Nepal is being carried out in Indian currency while with Bhutan all trade is in rupees.
In July this year during Prime Minister Narendra Modi’s visit to the UAE both countries had signed a Memorandum of Understanding to establish a Local Currency Settlement System. The system will cover all current account transactions and permitted capital account transactions. It will also allow importers to pay in their local currency and lead to development of the Indian Rupee(INR)-United Arab Emirati Dirham (AED) market. UAE is the second biggest market for Indian exports.
Talks have also started with another important trading partner Saudi Arabia for shifting trade to local currencies. India’s exports to Saudi Arabia are $10.2 billion while imports are $42 billion. Here again crude oil dominates India’s imports.
India’s total merchandise trade in FY 23 was $1161 billion so $2.5 billion local currency trade is just scratching the surface.
Source: The Financial Express