Indian policymakers have reworked foreign trade policy guidelines and related banking regulations to allow export incentives for international shipments settled in rupees, instead of traditional US dollar payments.
The move builds on a notification issued by the country’s banking regulator Reserve Bank of India in July this year.
“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,” an official statement issued by the Indian Ministry of Commerce and Industry noted.
The ministry also said: “Accordingly, benefits/fulfilment of export obligations under the foreign trade policy have been extended for realisations in Indian rupees as per the RBI [Reserve Bank of India] guidelines.”
It went on to add, “Given the rise in interest in internationalisation of Indian Rupee, the given Policy amendments have been undertaken to facilitate and to bring ease in international trade transactions in Indian Rupees.”
Although this alternative mechanism was in large part meant to overcome payment bottlenecks for trade with Russia in the wake of Western sanctions on Moscow, New Delhi is looking at a wider rupee reach.
With Russian banking institutions remaining cut off from the international payments system SWIFT, bilateral trade between India and Russia became a serious challenge.
“The government now allows international trade settlement in rupees for export promotion schemes,” India’s Commerce and Industry Minister Piyush Goyal said in a statement. “Exporters can now avail benefits for trade transactions in our currency.”
Shipper groups have been pressing the government for incentives in order to encourage the rupee trading mechanism and the updated provisions come in response to that demand.
To that end, the Federation of Indian Export Organisations (FIEO), in an earlier appeal, called on the government and RBI to consider extending the “export refinance facility” for transactions settled in the local currency. “Such a measure will be extremely beneficial for our small exporters as the interest rates in many competing countries are much lower than in India and the double whammy is the loss on account of exchange rate as Indian rupee remains one of the comparatively strong currencies globally,” stated FIEO.
While trade stakeholders are upbeat about the alternative method, it remains to be seen how many major banking institutions will proactively support exporters seeking rupee settlements.
“This new facility will encourage countries having foreign exchange reserve problems or to overcome restrictions imposed by the USA and other developed countries to do trade in their currencies,” the Apparel Export Promotion Council (AEPC) said in a previous statement.
AEPC added, “The foreign exchange currency risk will be eliminated. This can save a substantial amount of hedging cost and import leading to export payments which will be fast and economical, thereby reducing transaction cost.”
Jenny Daniel
Global Correspondent
Contact email: j.daniel@container-news.com
