African Reserves

Rupee deal to boost trade with countries hit by sanctions: exporters

The central bank’s decision to allow export and import settlement in rupees to ease pressure on foreign exchange reserves would boost trade not only with Russia but also with other sanctioned countries like Iran , the exporters told FE. The facility can also be leveraged to trade with Sri Lanka and some African countries that would face currency problems of varying magnitude, some said.

Although the initial impact of this decision is unlikely to be substantial, given the limited trade with these countries, it will lead to an internationalization of the rupee in the long term, which can potentially attract more countries to this agreement. bilateral and bode well for the current account balance, they said. It is also a necessary step towards full rupee convertibility, they added.

The central bank’s decision is not targeted at any particular country – sanctioned or not – and all of India’s trading partners can choose to adopt this mechanism on a bilateral basis.

A Sakthivel, president of the umbrella organization of exporters FIEO, said it was a timely decision at a time when many countries in Africa and South America are facing currency shortages, allowing imports only through letters of credit.

EEPC India President Mahesh Desai said that since the sanctions were imposed on Russia, exports to the country have been very limited due to payment issues. “Thanks to the Trade Facilitation Mechanism introduced by the RBI, we are seeing payment issues with Russia ease. The latest decision would also reduce the risk of forex fluctuation, especially with regard to the euro-rupee parity.

Jyoti Prakash Gadia, managing director of consultancy firm Resurgent India, said it was a win-win situation for India and all other countries, including Russia, with which India can develop direct bilateral trade relations instead of using the usual general multilateral global trade route. “Goods and services can be identified against each of those countries affected by sanctions or due to a shortage of foreign exchange reserves.”

“The mechanism provided by the RBI is robust and allows opening Rupee Vostro accounts for settlement, which also takes care of offsetting export receivables against imports and appropriately utilizing the surplus generated,” said Gadia said.

According to the RBI decision, all exports and imports can be denominated and invoiced in rupees. The exchange rate between the currencies of the two trading partners can be determined by the market. The RBI has spent about $46 billion since February to defend the rupee, thanks to high global commodity prices and interest rate tightening by the United States.

“In order to promote the growth of global trade with a focus on exports from India and to support the growing interest of the global trading community in INR, it has been decided to put in place an additional arrangement for export invoicing, payment and settlement. /imports in INR,” the RBI said in a notification on Monday.

For the settlement of trade transactions, the relevant banks will need special Vostro rupee accounts of the trading partner’s correspondent banks. “Indian importers who undertake imports through this mechanism will make payment in INR, which will be credited to the Vostro special account of the correspondent bank of the partner country, against the invoices for the supply of goods or services from the seller / supplier foreigner,” the RBI said.