Government permits rupee settlement in export promotion schemes
The decision to allow settlement of the trade in Indian rupees has come amid the increasing pressure on the Indian currency in the wake of Russia’s invasion of Ukraine in late February.
The Government of India has made changes to the Foreign Trade Policy in order to allow for rupee settlement of the international trade for export promotion schemes. The news was shared by the Commerce Ministry on November 9, 2022.
The Commerce Ministry said in a statement that given the rise in interest in the internalization of the Indian Rupee, the given policy amendments have been undertaken to facilitate and bring ease in the international trade transactions in Indian Rupees.
The move to allow settlement of the trade in Indian rupees has come amid the increasing pressure on the Indian currency in the wake of Russia’s invasion of Ukraine in late February.
Centre allows International Trade Settlements in Indian Rupees for Export Promotion Schemes under the Foreign Trade Policy. Decision to facilitate and ease international trade transactions in Indian Rupees: Government of India— ANI (@ANI) November 9, 2022
Rupee Settlement in export promotion schemes
- The changes have been notified for imports for exports, export performance for recognition as Status Holders, realization of export proceeds under advance authorization and Duty-free import Authorisation schemes, and realization of the export proceeds under the export promotion of the capital goods scheme.
- The changes will mean benefits, incentives and the fulfillment of export obligations under the Foreign Trade Policy can be extended o the export payments made in Indian rupees.
Mechanism to settle global trade in Rupees
The Indian Central Bank had earlier announced the setting up of a mechanism to settle the global trade in rupees. Under this mechanism, all the 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.
In order to settle these transactions, the authorized Indian banks have to open the Special Rupee Vostro Accounts of correspondent banks of the partner trading country.
Allowing trade in Indian Rupee: What is the reason behind it?
The recent move by the Government of India to allow the settlement of trade in Indian Rupees has come amid the increasing pressure on the Indian currency in the wake of Ukraine’s invasion by Russia.
On July 19, 2022, days after the Reserve Bank of India (RBI) introduced the mechanism, the rupee broke past the 80 per dollar mark for the first time. The rupee has also further weakened since then and has even breached the 83-per-dollar-level.
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