India eases rules for rupee export payments, seeks to widen trade settlement

NEW DELHI: India on Thursday eased rules on ​rupee export payments, putting them ​on par with foreign-currency earnings for trade-policy benefits, aiming ​to promote wider use of the local currency in global trade.

Here are some details:

The Directorate General of Foreign Trade amended the Foreign Trade Policy with immediate effect, ‌allowing export ⁠contracts, ⁠invoices and payments with non-Asian Clearing Union (ACU) countries to be denominated and settled in rupee or foreign currencies.

The move removes a hurdle to rupee trade and could ​help commerce with countries facing dollar shortages, but its wider use will depend on whether foreign firms and banks can obtain and use rupees ​easily.

Earlier, proceeds generally had to be ⁠realised in ‌a freely convertible currency, even though invoices could in ​some cases ​be raised in rupees.

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Eligible rupee export receipts, except ⁠those involving Nepal and Bhutan, will qualify for trade-policy ​benefits and count towards exporters’ obligations if routed ​through approved banking channels.The changes align with the Reserve Bank of India‘s 2023 foreign-exchange rules permitting broader rupee use in cross-border trade.

For ACU members – Bangladesh, Iran, Maldives, Myanmar, Pakistan and Sri Lanka – contracts must generally use an ACU-determined currency, though RBI directions may also ‌apply. Nepal and Bhutan have separate rules.

The ACU enables members to periodically settle net trade obligations, limiting repeated foreign-exchange ​transfers.

Ajay ​Srivastava, founder of ⁠the Global Trade Research Initiative, said the notification removes a major regulatory ambiguity but will not alone spur large-scale rupee trade.

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“Regulatory permission alone will not ​create large-scale rupee trade,” he said, citing foreign buyers’ difficulty in obtaining rupees and overseas banks’ reluctance to hold a non-fully convertible currency.

India needs country-specific settlement deals, simpler banking procedures, affordable hedging, rupee-based export credit and export-credit insurance to make rupee settlement commercially viable, Srivastava said.