The government has amended the Foreign Trade Policy 2023 to put eligible export payments received in rupees on par with foreign-currency earnings.
The change removes a major regulatory hurdle in India’s push to expand the use of the rupee in international trade.
Highlights
- DGFT has amended Foreign Trade Policy 2023 with immediate effect
- Export contracts and invoices can be made in rupees or foreign currency
- Eligible exports settled in rupees will now receive FTP benefits
- Rupee receipts will count towards fulfilment of export obligations
- Move builds on RBI’s Special Rupee Vostro Account mechanism introduced in 2022
- Rupee settlement could help reduce currency conversion costs for traders
The Indian government has eased rules for settling international trade in rupees, removing a key regulatory hurdle for exporters receiving payments in the domestic currency.
The Directorate General of Foreign Trade (DGFT) has amended the Foreign Trade Policy (FTP) 2023 with immediate effect. The changes align India’s export invoicing and payment realisation rules with the Reserve Bank of India’s existing foreign exchange regulations.
Under the revised framework, exporters dealing with countries outside the Asian Clearing Union arrangement can set contracts and invoices either in Indian rupees or foreign currency. Export payments can also be received in either currency.
More importantly, eligible exports to countries other than Nepal and Bhutan for which payments are received in rupees through approved banking channels will qualify for FTP benefits. Such receipts will also count towards the fulfilment of export obligations in the same way as earnings received in foreign currency.
The move addresses an important uncertainty faced by exporters using the rupee settlement mechanism.
In July 2022, the RBI introduced a framework allowing international trade to be invoiced and settled in rupees through Special Rupee Vostro Accounts (SRVAs). Banking rules were subsequently relaxed further, but exporters still faced questions over whether rupee receipts would qualify for benefits available under India’s foreign trade policy.
The latest DGFT amendment removes this uncertainty.
The framework could be particularly useful while trading with countries facing shortages of US dollars or difficulties accessing conventional international payment systems. Rupee-based settlement may also help businesses reduce currency conversion costs and provide an alternative to settling every transaction in dollars.
However, regulatory changes alone may not lead to a rapid increase in rupee-denominated international trade. Wider adoption would also depend on the availability of rupees to foreign buyers, banking infrastructure, hedging facilities and mechanisms allowing overseas banks to invest, convert or repatriate their rupee balances.
India has maintained that its rupee internationalisation strategy is aimed at increasing the currency’s use in international trade rather than replacing the dollar or creating an alternative BRICS currency.
