International Trade Settlement in Rupee (Indian Currency)

International Trade Settlement in Rupee (Indian Currency)

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May 03, 2023

The RBI or, the Reserve Bank of India has approved an agreement for domestic businesses to settle their Import and Export in Rupees a move that analysts say is meant to make easier commerce with sanctions-hit Russia. It has been agreed upon to put into effect a supplementary framework for invoicing, payments, and settlements of Exports/Imports in INR in order to encourage the expansion of global commerce with a focus on Exports from India and to support the increasing enthusiasm of the worldwide trade community in INR.

Authorised Dealers (AD) banks will need prior authorisation from the Foreign Exchange Department of the Reserve Bank of India, Central Office in Mumbai, before implementing this method. Under the Foreign Exchange Management Act of 1999 (FEMA), the general framework for cross-border commerce transactions in INR is as follows:

               • Invoicing - Under the terms of this agreement, all imports and exports could be categorised and invoiced in Indian Rupees (INR).

               • Exchange Rate - The rate of change between the currencies of the two trade partners may be established by the market.

               • Settlement - Under this arrangement, trade transactions shall be settled in INR in keeping with the method outlined in Paragraph 3 of this circular.

Advantages

               • From the standpoint of India, this is a positive step. We will save foreign money under the new system since we import more than we export. For example, in the past, we were obligated to pay Russia in dollars for oil imports, but this is no longer necessary because to the Rupee-Rouble exchange rate.

               • Under the method, Indian importers will make payment in Rupees, which will be reimbursed to the partner nation's corresponding bank's Vostro account. In a comparable manner Indian exporters will be paid in Rupees from the partner the nation's holdings in the Vostro account.

               • The burden on India's forex reserves will be relieved as a result of the plan to enable commerce in rupees.

               • With the novel method of payment in place, India would be able to dodge sanctions imposed on Russia and Iran.

               • Trade between Brazil, Russia, India, China, and South Africa (BRICS) and South Asian nations might grow if India allowed Rupee-Rupee transactions, which has long been requested by the sector.

Source - The HINDU