The Reserve Bank of India (RBI) has put in place a mechanism to facilitate international trade in rupees (INR), with immediate effect. However, banks acting as authorised dealers for such transactions would have to take prior approval from the regulator to facilitate this.
“In order to promote growth of global trade with emphasis on exports from India and to support the increasing interest of 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 RBI said in a notification.
“Before putting in place this mechanism, banks will be required to take prior approval from the Foreign Exchange Department of Reserve Bank of India, Central Office at Mumbai,” it said.
“The RBI’s move to set up International Trade Settlement mechanism in INR would facilitate trade with countries under sanction like Iran and Russia,” said EEPC India Chairman Mahesh Desai. “Ever since sanctions were imposed on Russia, trade has been virtually at standstill with the country due to payment problems. As a result of the trade facilitation mechanism introduced by the RBI we see the payment issues with Russia easing. The move would also reduce the risk of forex fluctuation specially looking at the Euro-Rupee parity. We see this as a first step towards 100% convertibility of Rupee,” he said.
All exports and imports under this arrangement may be denominated and invoiced in rupee (INR) and the exchange rate between the currencies of the two trading partner countries may be market determined, RBI said in the notification.
It said AD banks in India had been permitted to open Rupee Vostro Accounts.
Indian importers undertaking imports via this mechanism will make payment in INR which will 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.
Indian exporters using the mechanism will be paid the export proceeds in INR from the balances in the designated Special Vostro account of the correspondent bank of the partner country.
Welcoming the new Provision, FIEO president A. Sakthivel the timely move, at a time when many countries were facing ‘huge forex shortages in Africa and South America’, allowing only exim transactions through LC will help our exporters and importers. “This move is a recognition of the Indian rupee as an international currency. We hope that the Government will clarify on exports benefits on such exports in Rupee, which is hitherto only granted for exports payments received in foreign currency,” , observed Mr. Sakthivel.
Observers also pointed to the move likely adding strength to the rupee in forex trade. ”Amid ongoing rupee weakness, the RBI today announced steps which appear to be aimed at reducing demand for foreign exchange, by promoting rupee settlement of trade flows,” said Rahul Bajoria, MD and Chief India Economist, Barclays. “While incremental for now, we see these measures as useful long-term steps, which can enable greater use of INR in foreign trade,” he added.
As per the notification, Indian exporters may receive advance payment against exports from overseas importers in Indian rupees through the above Rupee Payment Mechanism. Before allowing any such receipt of advance payment against exports, Indian banks need to ensure that available funds in these accounts are first used towards payment obligations arising out of already executed export orders / export payments in the pipeline, the RBI said.
