Amid declining share of dollars in the world’s forex reserves and the government's efforts to boost trade settlements via Indian rupee, the government has said it has started trade in INR with neighbouring countries like Sri Lanka, Nepal, Bangladesh, Bhutan, Iran and Russia.
Minister of state in the commerce ministry, Anupriya A Patel, says Sri Lanka has included INR in its list of designated foreign currencies. Authorised Dealer (AD) banks in India have also been permitted to open rupee vostro accounts. Accordingly, rupee vostro accounts of 8 banks from Sri Lanka have been opened with respective authorised banks in India.
In case of Nepal, a significant part of the India-Nepal trade is being carried out in INR, the minister informs.
With Bangladesh, Patel says, India has formally launched a new mechanism to settle trade in INR on July 11, 2023. "Two Indian and Bangladeshi banks each have been designated to settle bilateral trade in INR. These are SBI and ICICI Bank from India; and Sonali Bank PLC. and Eastern Bank Ltd. from Bangladesh."
Also, to formally launch trade in INR, a formal ‘Exchange of the Letters of Credit, i.e., LC documents in INR between the first exporter and importer through their banks was also carried out.
The minister says all bilateral trade between India and Bhutan is transacted entirely in INR, while in case of Iran, an arrangement to facilitate bilateral trade payments was adopted in November 2018.
With Russia, too, India has initiated the "rupee trade mechanism" to facilitate trade in national currency. The Reserve Bank had issued the guidelines for opening special rupee vostro accounts (SRVA) by foreign banks in Indian commercial banks. "As of 2 July 2023, the RBI has approved 34 applications from different Russian banks for opening SRVA in 14 Indian commercial banks."
Notably, the RBI had also formed an Inter-Departmental Group (IDG) in December 2021 to examine the issues related to internationalisation of INR and suggest a way forward. The group suggested two selection criteria for inclusion of a currency in the special drawing rights (SDR) basket: export criterion and freely usable currency criterion. The SDR is an international reserve asset created by the International Monetary Fund (IMF) to supplement the official reserves of its member countries.
The value of the SDR is based on a basket of five currencies — U.S. Dollar, Euro, Renminbi, Japanese Yen, and British Pound Sterling. The SDR basket is reviewed quinquennially. At the time of 2022 review of SDR, India was ranked as the 10th largest exporter, accounting for 2.5% of world exports during 2017-21.
Besides, Finance Minister Nirmala Sitharaman earlier informed Parliament on July 31, 2023, saying the Centre is extending global outreach of India’s payment products like Unified Payments Interface (UPI) and RuPay to enhance cross-border transactions between India and other countries.
After the Russia-Ukraine war, India along with other BRICS nations have started signing trade settlement deals in their own currencies by-passing U.S. dollar. Recently, India and Malaysia have reached a bilateral agreement to settle trades in Indian rupee in addition to the current modes of settlement in other currencies. Also, India and UAE are in talks to use Indian Rupees to trade non oil commodities in a shift away from U.S. dollars.