India (Commonwealth Union)_ According to Piyush Goyal, India’s Commerce and Industry Minister, Bangladesh, Sri Lanka, and several Gulf nations have expressed interest in engaging in trade with India using the Indian rupee, citing potential reductions in transaction costs for businesses. Goyal emphasized the significant impact such a move could have on India’s international trade landscape, referring to it as potentially “game-changing.” Goyal disclosed that Bangladesh and Sri Lanka are already in discussions with India, urging for an immediate initiation of trade in rupees.
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Additionally, he noted that other Gulf countries are also exploring this option. He anticipates that as the benefits become apparent, more nations, including those in the Far East, will join in. Singapore has already shown some level of commitment to the idea. He stated, “Bangladesh and Sri Lanka are already discussing with us and they want us to start this immediately. Other nations in the Gulf region are also looking at that. I think it will take some time for people to notice the benefits. And then we will have more and more developed countries and countries in the Far East also joining the bandwagon. Notably, Singapore is already on board to some extent”.
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Goyal elaborated on the growing interest from various countries, highlighting their desire to conduct direct transactions between their respective local currencies and the Indian rupee. He stressed that many nations recognize the potential cost savings compared to converting transactions into a third currency, a process that incurs additional expenses. He emphasized that trading in other currencies incurs foreign exchange and transaction losses due to conversion costs, leading to delays in fund transfers and increased transaction expenses.
Initiating this shift involves establishing frameworks between central banks of participating nations and gaining acceptance from importers and exporters, a process that Goyal acknowledges takes time. However, he expressed confidence that once implemented, the initiative will gain significant momentum. He stated, “We started with the UAE. The UAE was one of the first countries to accept this. It is now picking up traction. We get a lot of countries who approach us saying that they would also like to start direct transactions between the local currency and the rupee”. He added, “It is a process which takes time. It involves the central bankers of both nations to create the framework and then it evolves acceptance by importers and exporters. When it will take off, it’ll just fly”.
Goyal pointed out the stability of the Indian Rupee against most international currencies, a factor that experts believe contributes to the growing interest in conducting trade transactions using the rupee. Moreover, the initiative benefits countries facing dollar shortages, providing them with alternative avenues for trade transactions. India has already commenced rupee-based trade with neighboring countries like Nepal and Bhutan, while Russia and Sri Lanka have included the rupee in their designated foreign currency lists.
Notably, India’s recent crude oil purchase payment in rupees from the UAE marked a significant milestone, indicating India’s push for global acceptance of the rupee in trade transactions, with similar deals being pursued with other suppliers. To facilitate this shift, amendments have been made to the Foreign Trade Policy (FTP), allowing for international trade settlements in Indian Rupees, with the aim of positioning the INR as a global currency. The Reserve Bank of India (RBI) decision in July 2022 permitted the settlement of India’s international trade in rupees, allowing authorized Indian banks to establish and maintain special rupee Vostro accounts for partner trading country banks.
These Vostro accounts enable foreign banks to hold Indian rupees on behalf of their Indian counterparts. When Indian traders need to make payments to foreign traders in rupees, the amount is credited to these Vostro accounts. Conversely, when payments are due to Indian traders, the amount is deducted from the Vostro account and credited to the respective regular account. Many banks, including HDFC Bank and UCO Bank, have already started special Vostro accounts to facilitate overseas trade in rupees, with several countries expressing interest in adopting this arrangement for local currency trade.
