Oil companies in India are increasingly engaging with suppliers to negotiate crude oil settlements in Indian rupees (INR), but foreign suppliers remain hesitant to accept the currency, citing trade imbalances, according to the ministry of petroleum and natural gas.
The ministry’s statement comes in response to a parliamentary committee recommendation advocating for the settlement of crude oil imports in rupees to conserve the country’s foreign exchange reserves.
Trade Imbalance
The committee said that it found lack of momentum in settlement of crude oil import bills in Indian rupee and recommended the oil ministry to take up the issue with the ministry of finance and Reserve Bank of India (RBI) for removing bottlenecks in settlement of crude oil import bills in Indian rupee and promote the same.
It noted in its report that the RBI introduced additional arrangements for invoicing, payment, and settlement of exports/imports in INR. Authorised Dealer (AD) banks in India are permitted to open Rupee Vostro accounts for correspondent banks in partner trading countries, subject to RBI approval.
“The promotion of Indian rupee in settlement of crude oil bills is not a mere dream but it is a policy of the Government of India and it is incumbent on all the government agencies to make all out effort for successful implementation of the policy,” the committee said. It reiterated its recommendation that the petroleum ministry take up the issue with the finance ministry and RBI to accelerate rupee-based settlements.
Diversification Mandate
It also said that over dependence of the country and oil PSUs on any one region for crude oil and gas supplies can impact energy security of the country which entails getting uninterrupted supplies of crude oil and gas at reasonable prices to support the rapidly growing economy of the country.
The committee recommended that the petroleum ministry take concrete steps to diversify crude oil and gas import sources by exploring new international partners.