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The Reserve Bank of India (RBI) has allowed trade settlements between India and other countries, including Sri Lanka and Russia, in Rupees.
“In order to promote the growth of global trade with emphasis on exports from India and to support the increasing interest of the global trading community in INR, it has been decided to put in place an additional arrangement for invoicing, payment, and settlement of exports/imports in INR, (The) exchange rate between the currencies of the two trading partner countries may be market-determined,” the RBI said in a notification on Monday.
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Ananth Narayan, associate professor at the S P Jain Institute of Management and Research, told Business Standard: “On first reading, this circular seems geared towards enabling rouble-rupee trades settled in rupees. The language also seems to envisage alternative financial messaging to SWIFT (Society for worldwide Interbank Financial Telecommunications) if so needed.”
The Banks need to open rupee-based Vostro accounts of the corresponding country in order to settle trade transactions with that country.
“Indian importers undertaking imports through this mechanism shall make payment in INR which shall be credited into the Special Vostro account of the correspondent bank of the partner country, against the invoices for the supply of goods or services from the overseas seller/supplier,” the RBI said.
The notification said that Indian exporters who are sending out goods and services through this route should be settled in rupees from the balances in the designated special Vostro account of the correspondent bank of the partner country.
“At first glance, the move clearly looks like it is aimed at facilitating easier trade with Sri Lanka. The step to bring about denomination in rupees (for invoicing of exports and imports) definitely suggests that it is aimed at other countries in our neighborhood so as to remove the dollar exchange rate risk. There is also the element of facilitating trade with Russia, which is also a factor,” an anonymous economist said.
“The rupee has not weakened against every currency. In fact, it has strengthened against the currencies of most major countries. It seems like it is aimed at curbing that currency volatility. In principle, this is a good step because it gives more flexibility to both importers and exporters,” said Rahul Bajoria, managing director and chief India economist, Barclays.
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