India allows international trade settlements in rupees

The Reserve Bank of India (RBI) has allowed international trade settlements between India and other countries from July 11, including transactions with Russia and Sri Lanka, in rupees.

The move is aimed at facilitating steel and coking coal deals between India and Russia, Callanish sources say.

However, neither the RBI nor the iron and steel ministry commented on the Russian position.

“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, a decision has been made to implement an additional mechanism for export billing, payment and settlement. /import in Indian rupees,” the RBI said in a circular. “Before implementing this mechanism, AD banks [authorized dealer banks] must obtain prior approval from the Foreign Exchange Department of the Reserve Bank of India, headquartered in Mumbai.”

According to the RBI, exports/imports carried out and handled in this manner will comply with normal documentation and reporting requirements. Letters of credit and other trade-related documentation may be settled on a reciprocal basis between banks of trading partner countries in accordance with the general framework of the Uniform Customs and Practice for Documentary Credits (UCPDC) and Incoterms.

Indian exporters can receive upfront export payments from overseas importers in Indian rupees through the aforementioned rupee payment mechanism, he adds.

“Russia has a trade surplus with India,” says financial markets expert and professor Anant Narayan. “Having foreign currency assets pegged to rupees could appeal to Russia and India.”

After the Russian military actions in Ukraine, India imported large quantities of coking coal and steel from Russia. The RBI mechanism will allow Russia to place its product in India without the use of established international payment mechanisms operating in dollars. This is especially true after transactions from and with Russia were banned in SWIFT.