The central government has made changes to the Foreign Trade Policy to allow for rupee settlement of international trade for export promotion schemes, the commerce ministry said on November 9.
"Given the rise in interest in internationalisation of Indian Rupee, the given Policy amendments have been undertaken to facilitate and to bring ease in international trade transactions in Indian Rupees," the ministry said in a statement.
The ministry said the changes have been notified for imports for exports, export performance for recognition as Status Holders, realisation of export proceeds under advance authorisation and Duty-Free Import Authorisation schemes, and realisation of export proceeds under export promotion capital goods scheme.
The changes mean benefits, incentives, and fulfilment of export obligation under the Foreign Trade Policy can be extended to export payments made in Indian rupees, as outlined by the Reserve Bank of India (RBI) in July.
The Indian central bank, on July 11, had announced the setting up of a mechanism to settle global trade in rupees. Under the mechanism, all exports and imports may be denominated and invoiced in rupees, with the exchange rate between the currencies of the two trading partner countries to be market determined. To settle these transactions, authorised Indian banks have to open Special Rupee Vostro Accounts of correspondent banks of the partner trading country.
While the mechanism is yet to see its first transaction, Moneycontrol reported last month, quoting a senior government official, that UCO Bank and YES Bank had "joined hands" with Russian lenders under the framework.
RBI Deputy Governor T Rabi Sankar said in a speech on October 20 that it was receiving "encouraging response" from countries to participate in rupee-based trading.
India's largest banks are said to be wary of the mechanism on fears that they could face sanctions from Western nations should they enter into agreements with Russian entities.
The move to allow settlement of trade in Indian rupees came amid increasing pressure on the Indian currency in the wake of Russia's invasion of Ukraine in late February. On July 19, days after the RBI introduced the mechanism, the rupee broke past the 80-per-dollar mark for the first time.
The rupee has weakened further since then and even breached the 83-per-dollar level. However, it has recouped some of the losses and settled at 81.43 per dollar on November 9.
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