RBI move timely as countries face forex shortages in Africa and South America
The Federation of Indian Export Organizations (FIEO) has welcomed the Reserve Bank of India’s (RBI) decision to allow exports and imports to be denominated in rupees.
The move will internationalise the rupee which, in turn, will reduce foreign currency risks for traders and help navigate payment hurdles in trading with Russia. It will also reduce demand for dollars.
This move will pave the way for trading and settlement of Exim transactions in Indian Rupee, FIEO President Dr. A. Sakthivel said on 11 July 2022, following the RBI announcement.
He said the move is timely as many countries are facing huge forex shortages in Africa and South America, allowing only EXIM transactions through LC will help Indian exporters and importers.
“This move is a recognition of the Indian rupee as an international currency,” he underlined.
“We hope the Government will clarify on exports benefits on such exports in Rupee which is hitherto only granted for exports payments received in foreign currency.”
The new framework provides for a market-determined exchange rate between two trading partners.
“Ever since sanctions were imposed on Russia, trade has been virtually at standstill with the country due to payment problems. As a result of the trade-facilitation mechanism introduced by the RBI, we see payment issues with Russia easing,” said Engineering Export Promotion Council chairman Mahesh K. Desai.
“The move would also reduce the risk of forex fluctuation, specially looking at the Euro-Rupee parity. We see this as a first step towards 100% convertibility of rupee.”
Exporters have been waiting for a payment mechanism with Russia to begin shipping goods that do not face sanctions, including pharma and food products.
If a trading partner agrees for billing in rupees, they will either receive or make payments into a special rupee Vostro account that Indian banks have been allowed to open on behalf of foreign partners. fiinews.com
