Indian exporters and traders can now accept payment in Indian Rupees (INR), rather than US dollars, according to new rules introduced by the Reserve Bank of India
The Reserve Bank of India (RBI) has announced a new forex mechanism in a bid to stabilise the Indian economy and encourage more cross-border trade.
The system will facilitate international trade settlements in Indian rupees (INR), according to a public statement released on July 11.
The arrangement, which banks will need to seek prior approval to use, means that Indian traders and exporters are now able to finance their deals or operations using the local currency, rather than the US Dollar.
The hope is that this will help to stabilise the amount traders pay when agreeing on terms for cross-border transactions for goods and services.
On a wider level, the aim is to increase liquidity in the trade finance market whilst also helping to protect India’s forex reserves.
These foreign currency assets have continued to fall in the face of a weakening rupee, causing foreign investors to withdraw funds from the Indian equity market.
In a statement earlier this month, Indian Finance Minister, Nirmala Sitharaman, said: “The Reserve Bank of India is very keenly watching the exchange rate. We are not alone in this world. We are also open as an economy.”
She went on to point out that although the depreciation of the INR made imports more costly, it also made Indian exports more attractive.
Trade figures for June 2022 reflect this: during the past 12 months, Indian manufacturing and exports grew by 23%, according to figures released by the Indian Ministry of Commerce & Industry.
The move is also designed to ease the pressure for local retailers and manufacturers.
In its 25th Financial Stability Report (FSR) released on Thursday, the RBI was also quick to reassure businesses of the rupees’ value.
The announcement comes just weeks after Indian government ministers helped to secure a multi-lateral trade deal signed at the WTO MC12 conference held in Geneva.
A number of trade concessions were agreed upon relating to fishing subsidies and duties on COVID drugs and medical equipment.