Exclusive: Brazil, South Africa may be next in line for India’s bilateral currency settlement plan

New Delhi has already signed a pact with UAE to use the rupee and dirham to settle bilateral transactions and the same was also discussed with Indonesia.

After the United Arab Emirates (UAE) and Indonesia, India may turn to key partners in Latin America and Africa to forge bilateral agreements to facilitate trade in local currencies to give the much-needed fillip to the eventual plan to internationalise the rupee, a government official has said.

Key nations in these regions, such as Brazil, Argentina, South Africa, Senegal and Tanzania, are likely to be the next set of candidates for India’s bilateral local currency settlement push as it plans to convince smaller countries first to accept payment in rupees for transactions, according to the official.

“If we have to push rupee trade, we have to start with smaller nations where it would be easier to give a push rupee internationalisation,” the official said on the condition of anonymity, adding that the plans are initial and would require discussions.

With Brazil and Tanzania, New Delhi enjoys a trade surplus of $3.25 billion and $1.39 billion, respectively, as of 2022-23. With South Africa, Senegal and Argentina, the trade deficit is minimal at best, commerce ministry data for the period revealed.

Picking the right partners

Moneycontrol had reported earlier that, for its bilateral currency settlement plan, the Indian government’s pick for partners will be based on the potential to do more trade as well as balance the trade gap between the two nations. With these countries from Latin America and Africa, India has either a trade surplus or a manageable deficit.

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The products India and these nations import and export between them are seemingly playing a role in New Delhi’s choice of partner countries. Senegal is a major importer of India’s rice, which makes the African nation a good candidate, the official said.

India’s key exports to these nations include petroleum products, engineering goods, drugs and pharmaceuticals, and rice. In terms of inbound shipments, while both Brazil and Argentina are traditional import source nations for India’s edible oil requirements, the South Asian nation purchases a significant amount of fertilisers, cotton, and toys from South Africa. Tanzania and Senegal play a key role in fulfilling New Delhi’s requirements in gems and jewellery.

New Delhi has already signed a memorandum of understanding (MoU) last month with the UAE to use the rupee and the dirham to settle bilateral transactions and a local currency settlement plan was also discussed with Indonesia during talks between the two sides on the sidelines of the meeting of G20 Finance Ministers and Central Bank Governors in Gandhinagar in mid-July.

India is also said to be looking at Bangladesh and Sri Lanka as well for its local currency settlement plan as these neighbouring nations are grappling with currency shortages.

Also read: India discusses potential for local currency trade settlement with Vietnam