The Reserve Bank of India has allowed payments for exports and imports between India and other countries in rupees, a move that will facilitate trade with countries such as Russia, Sri Lanka and Iran.
The measure will also help to reduce the demand for dollars which will strengthen the rupee vis- a-vis the US currency at a time when it has slumped to a record low.
“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 RBI said its notification on Monday.
“The exchange rate between the currencies of the two trading partner countries may be market-determined,” the RBI said.
Banks in India are now permitted to open Vostro accounts in rupees (Vostro accounts are arrangements between banks across different countries). The RBI said for settling trade transactions with any country, banks in India might open special rupee Vostro accounts of correspondent bank/s of the partner-country in trading.
“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.
Indian exporters sending out goods and services through this mechanism should be paid in rupees from the balances in the designated special Vostro account of the correspondent bank of the partner country, the notification explained.
The Western sanctions are hindering India’s trade with countries like Russia and the globalisation of the rupee will help to tackle this challenge.
Indian pharmaceutical companies such as Dr Reddy's and Sun Pharma have a significant presence in Russia and they have been worried that sanctions against Russian banks may impact remittances of outstanding trade receivables from that country.
India had exported pharmaceuticals worth $591 million to Russia in 2020-21, according to Pharmaceuticals Export Promotion Council (Pharmexcil).
Russia also buys 43-45 million kg of tea from India every year. Non-basmati rice coffee and tobacco are other items of export from India to Russia.
Sanctions imposed by the West against Russia are making it increasingly difficult for Indian companies to do business with Russia.
This is also happening at a time when India’s crude oil imports from Russia are on the rise which would result in a large trade deficit for India if exports don’t pick up.
