RBI's move to settle trade transactions in rupee timely: Exporters

Exporters said the move was a step towards acceptance of rupee as an international currency.

Exporters cheered as the Reserve Bank of India (RBI) on Monday accepted their demand to set up a mechanism to settle international trade transactions in rupee, a move they said would enable trade, especially with sanctions-hit nations.

While the central bank’s decision will apply to almost all trading partners of India, exporters said that one of the main triggers was to ease the disruption created by international trade since Russia's invasion of Ukraine from February 24. They also said the move was a step towards acceptance of rupee as an international currency.

Federation of Indian Export Organisations (FIEO) President A Sakthivel said the new provisions would help export-import (EXIM) trade with countries staring at a foreign exchange shortage. “This is a timely move, and comes at a time when many countries are facing huge forex shortages in Africa and South America. Allowing only EXIM transactions through a letter of credit will help our exporters and importers.”

With western nations imposing sanctions on Russia after its invasion of Ukraine, exporters were staring at payments-related challenges. While they said most of the stuck payments had now been cleared, the mechanism drawn out by the central bank was the much needed step-by-step measure that had been made public for the first time. Besides, the decision is crucial considering India’s rising dependence on Russian crude oil. “This move is a recognition of the rupee as an international currency. We hope that the government will clarify on benefits on such exports in rupee, which is hitherto only granted for export payments received in foreign currency,” he said.

Engineering and Export Promotion Council of India India Chairman Mahesh Desai said there was a need to see this move as the first step towards 100 per cent convertibility of the Indian currency. Besides, it would reduce the risk of forex fluctuation.

Rupee is currently partially convertible. Making the domestic currency fully convertible will enable easier conversion into another currency, apart from increasing liquidity in financial markets. “Ever since sanctions were imposed on Russia, trade has been virtually at a standstill with the country due to payment problems. As a result of the latest mechanism, we see the payment issues with Russia easing,” Desai said.

Another exporter said that they needed to wait for a few days to see how the mechanism was being implemented.