Bilateral trade in rupee to gather pace soon

With more countries expected to accept rupee payments for settling some of their trade with India, the government is hopeful that the volume of transactions through the rupee will gather pace over a period of time and help ease pressure on foreign exchange reserves.

So far, approvals have been granted by the Reserve Bank of India (RBI) to domestic and foreign authorised dealer banks in 60 cases for the opening of Special Rupee Vostro Accounts (SRVAs) of correspondent banks from 18 countries, namely Botswana, Fiji, Germany, Guyana, Israel, Kenya, Malaysia, Mauritius, Myanmar, New Zealand, Oman, Russia, Seychelles, Singapore, Sri Lanka, Tanzania, Uganda, and United Kingdom.

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“A bilateral beginning has been made with these countries to trade in our own currencies and over a period of time the volumes will pick up,” a senior official told FE.

Besides saving precious forex reserves and reducing reliance on currencies such as the US dollar and Euro, increased bilateral transactions in the rupee will save in currency conversion fees for traders also. Bilateral capital flows in local currencies will aid India’s long-term goal of internationalisation of the rupee as well.

“Discussions are happening with United Arab Emirates (UAE) for settling bilateral trade in our respective currencies (Rupee-Dirham) for imports and exports,” the official said.

UAE is the third largest trading partner of India after the US and China. In FY22, India-UAE bilateral trade stood at about $73 billion. In the first half of the current financial year, the bilateral trade was at $44 billion.

“India imports and export a lot and also gets a lot of remittances from the Gulf countries. So, it becomes much easier to transact in the local currency rather than going to a third-country currency like the US dollar or Euro,” the official said.

India’s foreign exchange reserves fell $2.4 billion to $560 billion for the week ended March 10, their lowest since early December.

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The RBI has allowed invoicing and payments for international trade in Indian Rupee through a circular dated August 11, 2022. It has put in place the arrangement 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 the rupee. The framework put in place by RBI is that for the opening of SRVAs, banks of partner countries may approach authorized dealer banks in India which may seek approval from RBI with details of the arrangement.