Reserve Bank of India (RBI) and the finance ministry on September 7 asked top management of banks and representative of trade bodies to push exports and import transactions in rupee.
Current situation
- As of today (in most cases) if an Indian firm exports or imports, transactions are always in a foreign currency (excluding with countries like Nepal and Bhutan).
- For imports, the Indian company has to pay in a foreign currency.
- The Indian company gets paid in foreign currency in case of exports and the company converts that foreign currency to rupee since it needs rupee for its needs, in most of the cases.
Exports and import transactions in rupee
- In July 2022, RBI has allowed trade settlements between India and other countries in rupees.
- Currently, a large part of bilateral trade between India and Russia is getting settled in rupee due to sanctions imposed by the US and Europe following Moscow’s attack on Ukraine.
- For settlement of trade transactions, the concerned banks will require special rupee vostro (SRV) accounts of correspondent banks of the partner trading country.
- Indian importers undertaking imports through this mechanism shall make payment in rupee 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.
- Exporters undertaking overseas shipments of goods and services through this mechanism will be paid the export proceeds in Indian rupees from the balances in the designated special vostro account.
Benefits
- This would decrease transaction costs,
- Do away with the requirement for settlement through convertible currency,
- Eliminate foreign exchange risk for exporters and importers,
- Lessen the pressure on rupee and
- Significantly help partner countries with balance of payment issues.
