News / India liberalises use of rupee in import and export trade deals

The Indian government, through its regulator the Reserve Bank of India (RBI), has made it easier for the country’s imports and export deals to be denominated in rupees (INR), instead of the US dollar payments that generally flow through the Swift system.

The move is significant as India faces the brunt of tariff shocks from the US government – already totalling 50% after two tranches.

RBI’s efforts to popularise and incentivise rupee-based bilateral trade transactions gathered steam following US sanctions on Russia in 2022, which created hurdles for India’s energy purchases from Moscow.

Indeed President Trump laid the blame for the high tariff on India’s purchases of Russian oil.

With the liberalised policy, ‘authorised dealer’ banks in India now have the regulatory freedom to open ‘special rupee vostro accounts’ (SRVAs) for overseas corresponding banks without having to obtain typically cumbersome pre-approvals from RBI.

The effort is paying off: more than 20 countries have already sought permission from RBI to join the rupee trading network, which already includes Singapore, Oman, Malaysia, and the UK.

The rupee has considerably depreciated against the US dollar in recent months, now inching to INR88:$1, said to be its lowest-ever level against the greenback.

“The depreciating value of the Indian rupee exacerbates the nation’s trade challenges,” said the Federation of Indian Export Organisations.“The depreciation has contributed to higher import bills, especially since India meets 90% of its oil demand from overseas.”

With the rupee trading mechanism, domestic shippers and forwarders can hedge against currency fluctuations within their index-linked international contracts, say financial experts.

“Trading in rupees, while continuing to be challenging, is a positive step as it helps freight intermediaries sufficiently hedge against the high credit bets they need to make in a hyper-competitive market environment,” one forwarder source told The Loadstar.

Indian supply chain stakeholders have generally welcomed the rupee-based trading window, as they would also be insulated against daily exchange rate fluctuations, especially since some of their trading partners, mostly in Africa and South America, have been plagued by acute foreign exchange shortages, causing payment delays and uncertainty.

And heeding appeals from industry leaders, Indian policymakers have also announced incentives to encourage trade in the local currency.

According to available data, the Indian market saw rupee import and export transactions worth more than $2.5bn in the first 12 months after they began, in July 2022.  And industry observers believe the scale of rupee-denominated exports would rise to some $10bn within the next few years.