Rupee invoicing has become a buzzword in India’s trade circles, especially after the Reserve Bank of India’s (RBI) circular in July 2022, which allowed for invoicing, payment, and settlement of trade (exports/imports) in rupees. The new Foreign Trade Policy (FTP) 2023 aims to promote exports through rupee invoicing, proposing that trading partners raise and settle their invoices in rupees. This framework facilitates invoicing of exports and imports in Indian currency, market-determined exchange rates between currency pairs, and trade settlement via Special Rupee Vostro Account (SRVA).
Benefits of Rupee Invoicing
The benefits are invoicing are manifold, especially during geopolitical unrest and economic sanctions against India’s major trade partners. Among these benefits are lowering of transaction costs, greater price transparency, quick settlement time, promoting international trade, reduction in hedging expenses, reduced cost of holding foreign reserves by the RBI, and, most importantly, internationalisation of the currency.
India’s trade deficit with eight out of the eighteen countries that have opened SRVAs to facilitate overseas trade in Indian currency in FY22, may be a cause for concern. However, analysis shows that invoicing the Indian currency would be more favourable with trade partners such as Russia, Saudi Arabia, Nigeria, and the UAE, where India is a large importer and potential exists for Indian exports as well.
Current Status of Rupee Trade
India’s policy of facilitating trade in Indian currency has been gaining momentum, with the total number of SRVAs reaching 60 in a span of seven months. However, the effectiveness of Indian currency trade ultimately depends on whether India is running a net trade deficit or surplus with the participating trading partners, as well as the extent of trading in comparison to the total bilateral trade.
In terms of foreign exchange market turnover, the rupee accounted for a mere 2% of the global currency market turnover in 2022. Similarly, India’s share of global foreign exchange reserves was negligible. However, the push towards rupee invoicing could change this scenario, as it promotes internationalisation.
Commerce and Industry Minister Piyush Goyal expressed optimism about traders settling foreign trade in the Indian Rupee currency. He said that several banks from different countries are opening Special Rupee Vostro Accounts (SRVAs) with Indian banks, and the Reserve Bank of India (RBI) has approved 60 requests to open such accounts of correspondent banks from 18 countries. Goyal also said that the RBI is in discussion with the central banks of other countries on the matter.
Goyal said that negotiations for Free Trade Agreements (FTAs) with developed regions like the European Union, the UK, and Canada are in advanced stages. He added that groups including European Free Trade Association Free Trade Agreement (EFTA), Gulf Cooperation Council (GCC) and Eurasian Economic Union (EAEU) are also keen to start talks for similar pacts with India. “The whole world wants to have a comprehensive economic partnership agreement with India,” he said.
Goyal spoke about the second phase of the production-linked incentive scheme for the textiles sector, saying that extensive stakeholder discussions have happened on the subject. He expressed confidence that very soon, the contours of the scheme would be finalized and taken up for approval at the highest level. He also said that Indian textile exporters were earlier facing customs duty disadvantages in developed markets, but as the government is inking trade pacts with regions like the UAE and Australia, domestic exporters would be able to push shipments.
To promote sustainability in the textiles sector, Goyal announced that the textiles ministry has decided to set up an ESG (environmental, social, and governance commitments) task force. The task force will come up with suggestions to make the sector more environment-friendly and sustainable. The textiles ministry has also launched a portal to promote the sale of handicrafts and handloom products.