Move to benefit sanction-hit and forex-starved countries
The government is working out a framework for countries or sovereign-backed firms to borrow from the Indian market to pay for their imports in rupee, a move that would help countries that have trade deficit with India, besides furthering the goal of rupee internationalisation.
“The countries which have trade deficits wth India or their firms may explore the possibility of borrowing from Indian markets (to pay for their imports, or take steps to step up their exports to India,” a senior finance ministry official told FE.
Even though such bilateral mechanisms will take time to stabilise, both export and import in the rupee would reduce pressure on the forex reserves of both partner countries and have mutual benefits
“On the face of it, if you’re looking from the exports and investment perspectives, it is good for India. It will also help India push exports to countries that are short of foreign exchange as those countries will not have many options. Therefore, they would like to work on this with India,” Federation of Indian Export Organisations Director General and CEO Ajay Sahai said.
However, he said, it needs to be known whether the mechanism will be in the form of a sovereign loan in rupee or via bank financing of individual companies.
The rupee borrowing facility to fund imports from India may benefit countries with international sanctions and/or those short of foreign exchange, including some in Africa and South Asia, Sahai added.
Last year, the Reserve Bank of India allowed countries with excess balance in their rupee accounts, trade-surplus countries with India such as Russia, to invest government in securities (G-secs) and Treasury Bills. Russia has channelled a portion of its surplus, thanks to a sharp increase in Russian oil imports by India, in its rupee account into the G-secs/Tbills, providing an additional stream of funds to the domestic gilt market.
To promote growth of global trade with emphasis on exports from India and to support the increasing interest of global trading community in the rupee, the RBI put in place an arrangement for invoicing, payments, and settlement of exports/imports for international trade in rupee on July 11, 2022.
The framework created by the RBI is applicable for any partner country seeking to undertake trade with India in INR. As on date, RBI has permitted 20 Authorised Dealer (AD) banks in India to open of Special Rupee Vostro Accounts (SRVAs) of partner banks from 22 countries namely Bangladesh, Belarus, Botswana, Fiji, Germany, Guyana, Israel, Kazakhstan, Kenya, Malaysia, Maldives, Mauritius, Myanmar, New Zealand, Oman, Russia, Seychelles, Singapore, Sri Lanka, Tanzania, Uganda, and United Kingdom.
The government has been exploring payment options for countries that have trade deficits with India and have difficulty in making payments in global currencies such as the US dollar, to ensure that Indian exports continue to those countries are unhindered.
Source:financialexpress.com