The launch of international trade in Indian rupees could lead to annual savings of $30-36 billion in hard currency, according to a report by the Economic Times.
Exporters told ET that the RBI's timely intervention on rupee could widen the scope for such trades with countries in the region, easing pressure on the exchange rate. The mechanism, which can be started without any delay with Russia, may be favourable for the Indian government bonds.
Also Read: Explained: What is RBI’s new international-trade settlement mechanism?
India's imports to Russia amounted to about $2.5 billion each in April and May - $30 billion on an annual basis. Some analysts expect this to rise to a monthly average of $3 billion over the fiscal year, or $36 billion in all.
The surplus balance held in a special vostro account to be opened under the rupee payment mechanism can be used for investing in the local capital market by entities based in India's trading partners under the model, as per the report.
According to B Prasanna of ICICI Bank, the scheme can potentially reduce India's hard currency outflows to the extent of $3 billion per month now, while providing Russia with the INR currency reserves to be deployed in India and provide demand for India bonds.
The scheme also opens the possibility for countries such as Russia, Iran or even Sri Lanka to engage with India if they face either face global economic sanctions or require financial aid.
The Reserve Bank of India (RBI) on Monday gave the go ahead for a rupee-denominated settlement mechanism for international trade. This mechanism is for international trade, and will help for any such trade to be settled in rupees.
Previously, under the RBI’s exchange control regulations, international trade (except for those done with Nepal and Bhutan) has to be settled in fully convertible currencies such as the US dollar, the Sterling Pound, Euro and Yen. This latest notification allows trade to be billed and settled in rupee terms.
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