Finance Minister Nirmala Sitharaman on Tuesday said many countries have evinced interest for bilateral trade in the rupee after the RBI announced a mechanism recently. Speaking at Mindmine Summit 2022, she said this along with other steps taken by the government is towards full capital account convertibility.
“It isn’t the rouble-rupee which was in the old format. Now this (bilateral rupee trade) formulation, which I am glad the RBI has come up at a time which was so critical,” she said when asked if India is ready for capital account convertibility.
Highlighting that many countries have evinced interest in trade in the rupee, she said, in a way it is opening the Indian economy more than what can be imagined. “Post-pandemic, India is coming up with so many out-of-the-box solutions…I would like to highlight the fact that we are a lot more open with the Indian economy, a lot more open in the way we are talking to countries, we are willing to have our digital platform become interoperable between countries to enable cross-border transactions,” she said.
It is to be noted that the RBI in July issued a detailed circular asking banks to put in place additional arrangements for export and import transactions in the rupee in view of increasing interest of the global trading community in the domestic currency. The announcement by the Reserve Bank of India (RBI) to allow cross-border trade transactions in the rupee is a timely move and a step towards internationalisation of the currency. Currently, a large part of bilateral trade between India and Russia is getting settled in the rupee due to sanctions imposed by the US and Europe following Moscow’s attack on Ukraine.
The RBI had said that for settlement of trade transactions, banks concerned will require special rupee vostro accounts of correspondent banks of the partner trading country. “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,” it had said.
Exporters undertaking overseas shipments of goods and services through this mechanism will be paid the export proceeds in the rupees from the balances in the designated special vostro account. As per the circular, the rupee surplus balance held can be used for permissible capital and current account transactions in accordance with the mutual agreement.