More countries should be encouraged to use Indian Rupee as trade currency, RSS affiliate tells government

So far 18 countries have permission to use rupee to settle payments but have India and Russia ‘suspended’ efforts on bilateral trade in INR?

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Tribune Web Desk

Vibha Sharma

Chandigarh, June 5

The economic wing of the RSS, the Swadeshi Jagaran Manch, has made certain suggestions to the Narendra Modi government to “further the objective of using the Indian Rupee as a trade currency” following a national council meeting on ‘International Settlement of Trade in Indian Rupee’.

Congratulating the government for the “historic step of approving trade settlement in rupees”, SJM’s Rashtriya Parishad said more countries should be encouraged to use the Rupee as a trade currency. “India can do this by signing bilateral agreements with other countries that would allow for rupee-denominated trade,” according to a statement by Ashwani Mahajan from the SJM.

SJM’ suggestions

Suggestions by the Sangh affiliate to make “rupee a more widely accepted currency for international trade” include “making it easier for businesses to use the rupee for trade. This could involve providing more liquidity in the rupee market and making it easier for businesses to open rupee accounts.”

“Promote the use of the rupee in international financial markets. This could involve encouraging foreign investors to invest in Indian rupee-denominated assets,” it says.

“Develop a robust rupee-denominated bond market. This would provide businesses with a wider range of investment options and make it easier for them to raise capital in rupees,” it adds.

“Promote the use of the rupee in trade with neighboring countries. This would help to reduce the need for India to use foreign currencies for trade with these countries,” it observes.

“Work with other countries to develop a common framework for rupee-denominated trade. This would make it easier for businesses to trade in rupees with countries that do not have bilateral agreements with India,” it says.

By taking these steps, India can help to reduce its reliance on the dollar for international trade and payments and help to insulate the Indian economy from fluctuations in the value of the dollar and could also help to boost India's exports, according to the SJM.

RBI and Indian rupee

In the wake of the Ukraine and Russia war and US sanctions on the use of dollars for payments to Russia and Iran, the RBI in July 2022 allowed settlement for import and export of goods and services in rupee.

Another reason was to support the weakening rupee by promoting Indian exports, resulting in growth in foreign trade. Many countries interested in importing from India and not able to do so due to paucity of dollars can pay now in INR, officials said.

To facilitate settlement in rupee, Indian banks also opened ‘Special Vostro Rupee Accounts’ with several countries.

So far, 18 countries have opened SVRAs to settle trade in rupee, according to reports. They include Malaysia, Mauritius, Myanmar, United Kingdom, Russia, New Zealand, Sri Lanka, Oman, Seychelles, Singapore, Tanzania, Uganda, Botswana, Fiji, Germany, Guyana, Israel, and Kenya.

Commerce and Industry Minister Piyush Goyal was quoted as saying that gradually countries have been realising that there is need to change in currency for transactions as settling trade in US dollar and Euro involves a conversion cost which in turn increases the overall amount.

India is also ready to trade in rupee with countries facing currency failure or dollar shortage, officials added.

India for the first time made payment to Russia in December 2022 for import of crude oil in rupee.

India-Russia bilateral trade in rupee “suspended”?

The government says several countries are in talks with the RBI to facilitate overseas trade in rupee as it helps cut transaction costs.

However, some recent reports suggest that India and Russia have “suspended” their efforts to settle bilateral trade in rupee as “negotiations failed to convince Moscow to keep the Indian currency in its coffers”.

One of the reasons was said to be the high trade gap in favour of Russia.

According to reports, while India’s exports to Russia were recorded at $2.8 billion in the first 11 months of the 2022-23 FY, imports remained much higher at $41.56 billion.

A major part of imports was on the back of the Russian crude.

“Imbalance in trade meant ‘frozen funds’ for Russia, leading to rupee surplus in billions of dollars which was not desirable. India’s share of global exports is around 2 pc, thereby reducing the necessity for countries to hold rupees. The Indian currency is also not fully convertible,” according to some experts.

The fact that Russia had accumulated “billions of Rupees in Indian banks it cannot use” was also highlighted by Foreign Minister Sergei Lavrov during his recent visit to India. “This is a problem…we need to use this money. But for this, these rupees must be transferred in another currency, and this is being discussed now,” he was quoted as saying.

Experts say a good beginning (for trade settlement in rupees) has been made but it requires more work. “International trade transactions between countries are based on many factors, including geopolitical and economic situation and relationships, the availability of goods, their quality and price and exchange rates,” they add.

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