India eases rupee trade rules, provides exporters alternative to dollar settlements; what it means
In a bid to push for greater adoption of rupee for trade settlement purposes, the government on Thursday revised parts of the Foreign Trade Policy to give exporters greater flexibility to invoice overseas transactions and receive export proceeds in Indian rupees.The changes apply to exports to all countries, although the applicable provisions differ depending on the destination.The Directorate General of Foreign Trade (DGFT) said in a notification that two provisions of the Foreign Trade Policy (FTP) 2023 had been amended “to align the provisions relating to denomination of export contracts and eligibility for FTP benefits in respect of export realisation in Indian Rupees with the Foreign Exchange Management (Manner of Receipt and Payment) Regulations 2023”.For countries outside the Asian Clearing Union (ACU), exporters can now denominate their contracts and invoices either in Indian rupees or in any foreign currency. Previously, export proceeds generally had to be received in a freely convertible currency.
What this means
Economic think tank Global Trade Research Initiative (GTRI) said the change means eligible rupee payments for exports to countries other than Nepal and Bhutan will now qualify for FTP benefits and can also be counted towards meeting export obligations.Rupee proceeds received through authorised banking channels will consequently receive the same treatment as export payments made in foreign currency, GTRI said. Exports financed through EXIM Bank or Government of India lines of credit can also be invoiced in rupees.The ACU is a regional payment mechanism created in 1974 to facilitate trade settlements between its members and reduce the need for repeated foreign exchange transfers by periodically settling their net obligations.The grouping has nine members: Bangladesh, Bhutan, India, Iran, Maldives, Myanmar, Nepal, Pakistan and Sri Lanka. Each country is represented by its central bank or monetary authority.Under the amended provisions, export contracts involving Bangladesh, Iran, Maldives, Myanmar, Pakistan and Sri Lanka must use a currency specified by the ACU. The notification, however, allows invoicing and settlement to also follow directions issued by the Reserve Bank of India.“Nepal and Bhutan are treated separately. Export contracts with these two countries must generally be denominated and settled in Indian rupees or according to RBI directions,” GTRI Founder Ajay Srivastava said.Iran remains covered by the ACU framework, but transactions involving sensitive goods and technologies must continue to follow paragraph 2.19 of the FTP.“This provision covers specified items linked to nuclear activities and nuclear-weapon delivery systems and reflects India’s obligations under UN Security Council Resolution 2231 and relevant International Atomic Energy Agency rules,” he said.The amendment brings the FTP into line with RBI’s Foreign Exchange Management regulations issued in 2023, which had already expanded the scope for using the rupee in international payments.Previously, exporters receiving rupee payments through RBI-approved banking channels could be uncertain about whether those receipts would qualify for FTP benefits or count towards their export obligations. The revised provisions address that uncertainty by treating eligible rupee receipts on par with export earnings received in foreign currency, Srivastava said.Using the rupee for settlement could lower currency-conversion expenses and reduce exchange-rate exposure for Indian exporters. The arrangement could be particularly useful for trade with countries facing shortages of dollars or difficulties accessing established international payment systems, he said.
International use of rupee
According to GTRI, the move could also help broaden the international use of the rupee by allowing Indian exporters and foreign buyers to settle transactions without necessarily relying on the US dollar or another freely convertible currency.Welcoming the notification, he said it eliminates an important uncertainty and gives eligible rupee export receipts the same status as foreign-currency earnings.“But regulatory permission alone will not create large-scale rupee trade.Foreign buyers must be able to obtain rupees easily, while overseas banks need practical options to use, invest, convert or repatriate their balances,” he said.Srivastava said India would now need country-specific settlement arrangements, easier banking processes, affordable hedging facilities, rupee-based export credit and ECGC protection.Without these supporting mechanisms, he said, rupee invoicing could remain a useful option for exporters without becoming a widely adopted method of conducting international trade.
