The new framework provides for a market-determined exchange rate between two trading partners. “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 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,” said Engineering Export Promotion Council chairman Mahesh Desai.
Exporters have been waiting for a payment mechanism with Russia to begin shipping goods that do not face sanctions, including pharma and food products. If a trading partner agrees for billing in rupees, they will either receive or make payments into a special rupee Vostro account that Indian banks have been allowed to open on behalf of foreign partners. A Vostro account is one opened by a bank in its home country on behalf of a foreign bank. The funds in the rupee account can be used by the export partner for trading with anyone who accepts rupees.
According to Federation of Indian Export Organisations president A Sakthivel, under current foreign exchange laws, the final settlement has to be in free foreign exchange except for Nepal and Bhutan. “Now the final settlement to all countries, if approved by the RBI, can be in Indian rupee,” he said.
He added that the move is timely as many countries are facing huge forex shortages in Africa and South America. Also, the government would need to clarify on the availability of incentives that are currently available to foreign exchange earners.Bankers said that rupee invoicing would reduce foreign exchange risks as the dollar had turned extremely volatile and several currencies have hit a new low against the dollar.
Speaking to TOI, a banker said that it is a major step which will lead to internationalisation of the currency.
“Nothing is going to change overnight. If you look at the internationalisation of the Chinese currency, it happened over a period of time with several measures being taken,” he said. He expected more measures to give a push to rupee trade and moving international financial markets to GIFT City. The key would be to get trading partners to accept rupees.
Banks will need to obtain permission from the RBI before putting in place this mechanism. “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 Indian rupee, it has been decided to put in place an additional arrangement for invoicing, payment, and settlement of exports/imports in rupee,” the RBI said.