The RBI has enabled exports and imports to be denominated in rupees. This will internationalise the rupee which, in turn, will reduce foreign currency risks for traders and help navigate payment hurdles in trading with Russia. It will also reduce demand for dollars.
The new framework provides for a market-determined exchange rate between two trading partners. “Ever since sanctions were imposed on Russia, trade has been virtually at standstill with the country due to payment problems. As a result of the trade-facilitation mechanism introduced by the RBI, we see payment issues with Russia easing. The move would also reduce the risk of forex fluctuation, specially looking at the euro-rupee parity. We see this as a first step towards 100% convertibility of rupee,” said Engineering Export Promotion Council chairman Mahesh Desai.
Exporters have been waiting for a payment mechanism with Russia to begin shipping goods that do not face sanctions, including pharma and food products. If a trading partner agrees for billing in rupees, they will either receive or make payments into a special rupee Vostro account that Indian banks have been allowed to open on behalf of foreign partners. A Vostro account is one opened by a bank in its home country on behalf of a foreign bank.
According to Federation of Indian Export Organisations president A Sakthivel, under current foreign exchange laws, the final settlement has to be in free foreign exchange except for Nepal and Bhutan. “Now the final settlement to all countries, if approved by the RBI, can be in Indian rupee,” he said. A banker said that it is a major step which will lead to internationalisation of the currency. “Nothing is going to change overnight. If you look at the internationalisation of the Chinese currency, it happened over time,” he said.