On Monday 11 July 2022, the Reserve Bank of India (RBI) announced that the settlement of international trade can be done in Indian Rupees (INR) in order to boost the growth of global trade and to emphasize exports from India. And this additional arrangement has been made for invoicing, payment, and settlement of imports and exports in Rupees.
Indian importers importing goods and services through this system will make payments in Rupees (domestic currency) which will be deposited to a special Vostro account of the correspondent bank of the participating country.
With this new mechanism plan of the Reserve Bank of India, Indian traders will now be able to process the payment of imports and exports directly in Indian Rupees.
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The Indian rupee is reaching its lowest level every day against the USD and has reached Rs 80.03 against one dollar. Experts believe that this mechanism will prevent the fall of the Indian rupee.
Currently, almost all foreign trade transactions in India had to be traded in convertible currencies like USD or Euro. The US dollar and the euro are both intervention currencies and foreign currency assets (FCAs) are maintained in major currencies.
How will work settlement of international trade in Indian Rupees?
Countries that show interest in trading in Rupees will have to open Special Rupee Vostro Account in India. And for this mechanism, the Authorized Dealer Banks will have to take prior approval from the foreign exchange department of RBI, after that the partner country’s bank will have to open a special rupee Vostro account in India, then whatever payment is made for import and export, it will be through the special Vostro account.
Similarly, Indian banks will have to open an account in the partner country’s bank so that both countries maintain reserves in the local currency.
Authorized dealer banks in India are permitted to open Rupee Vostro accounts in regulation 7(1) of the Foreign Exchange Management (Deposit) Regulations, 2016.
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When the partner country will make the payment, they will make the payment in their local currency and that money will be deposited to the Vostro account, not paid directly to the exporter.
Vostro account means an account held by one bank on behalf of another partner bank. In other words, an account of a foreign bank in India denominated in Indian Rupees.
Western countries are imposing sanctions on Russia, on the other hand, India wants to increase oil imports from Russia. India bought 9.5 lakh barrels of crude oil per day from Russia in June 2022, which is 15% more than in May 2022. In such a situation, this move can boost the trade between India and Russia.
Import and Export Data of India
India’s foreign trade merchandise exports grew by 23.5% to $40.13 billion in June 2022 from $32.49 billion in June 2021. India’s merchandise imports increased by 57.5% to $66.31 billion in June 2022 from $42.09 billion in June 2021.
India’s foreign trade service exports grew by 22% to $24.77 billion in June 2022 from $20.30 billion in June 2021. India’s service imports grew by 48.6% to $16.11 billion in June 2022 from $10.84 billion in June 2021.
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India’s foreign trade total exports of merchandise and services increased by 22.9% to $64.91 billion in June 2022 from $52.79 billion in June 2021. India’s merchandise and services imports grew 55.7% to $82.42 billion in June 2022 from $52.93 billion in June 2021.
According to RBI data, the total foreign exchange reserves as of June 24, 2022, were $ 593323 million as compared to $ 60,8999 million on June 25, 2021. The total foreign exchange reserves as on 8 July 2022 were $580252 million which is equivalent to 9.5 months of imports estimated for FY23. This includes a gold reserve of $39186 million and an FCA (Foreign currency assets) reserve of $518089 million.
RBI had 760.42 metric tonnes of gold as of March 2022 in which 295.82 metric tonnes of gold was domestic, 11.08 metric tonnes of gold deposits, and about 59.6% of the total gold reserve i.e. 453.52 metric tonnes of gold Bank of England and BIS (Bank of International Settlements) kept in safe custody.
RBI buys and sells gold on the London Metal Exchange through its Bank of England account. The share of gold in foreign exchange reserves rose to 7.01% by March 2022 as against 5.88% at the end of September 2021.
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FAQs about International trade settlement in Indian Rupees
Vostro account means an account of a foreign bank in India denominated in Indian Rupees.
India’s foreign trade total exports of merchandise and services increased by 22.9% to $64.91 billion in June 2022 from $52.79 billion in June 2021. India’s merchandise and services imports grew 55.7% to $82.42 billion in June 2022 from $52.93 billion in June 2021.