Rupee trade settlement to lift Indian tea, coffee shipments

The Centre’s decision to allow international trade settlement in the rupee will give a fillip to the Indian tea and coffee exports, especially to countries such as Russia and Iran, the major buyers of the Indian beverages.

“The rupee trade mechanism is a welcome step. As and when implemented, it will give a fillip to tea exports to the two most important countries—Iran and Russia. We are waiting for the fine print to get better clarity,” said Anshuman Kanoria, Chairman of Indian Tea Exporters’ Association.

In order to promote exports, the RBI issued a circular on July 11 allowing trade settlements between India and other countries in the Indian rupee (INR) with immediate effect. “It is a positive step. If it works well, there can be a positive growth,” said Dipak Shah, Chairman of South India Tea Exporters Association, adding that higher exports may be quite possible with the new initiative.

Edge over Lanka

N Lakshmanan Chettiar of Golden Hill Estates Pvt Ltd in Coonoor, an exporter of orthodox teas, said the rupee trade mechanism is beneficial as exporters will be able to get the money quickly. Also, it will lead to higher exports to Russia, former Comecon and CIS countries. Further, this will also give the Indian exporters an edge over Sri Lankan exporters, who don’t have such a facility, Lakshmanan said.

Over the past two weeks, Russia, Iran and other CIS countries have stepped up purchases. The increased demand for Indian orthodox teas has led to prices cross the ₹300-per-kg-mark in the recent auctions at Kochi.

India’s tea exports witnessed a nine per cent growth during January-April 2022 at around 65.91 million kg (mkg) compared with 60.43 mkg in the same period a year ago, Tea Board of India data showed. According to industry insiders, there has been a very good demand for Indian tea in Russia and Iran this year. In fact, exports to Iran grew by nearly 41 per cent at 8.46 mkg (6.02 mkg) during January-April 2022.

For settlement of trade transactions with any country, the authorised dealer banks in India should open special rupee vostro accounts, which are basically accounts that a correspondent bank holds on behalf of another bank of the partner country for trading.

Accordingly, all exports and imports under the new arrangement can be denominated and invoiced in INR.

Special vostro account

Indian importers undertaking imports through this mechanism will have to make payments in INR, which would be credited into the special vostro account of the correspondent bank of the partner country, against the invoices for the supply of goods or services from the overseas seller or supplier. The Indian exporters, undertaking exports of goods and services through this mechanism, would be paid the export proceeds in INR from the balances in the designated special vostro account of the correspondent bank of the partner country.

“The RBI initiative is likely to benefit the trading primarily with Russia which is at present is facing US sanction and the country is off the SWIFT system. It is not sure whether the mechanism will be helpful for trading with other countries as those countries may not accept it as they may need hard foreign currency to pay for their own imports,” Sujit Patra, Secretary, Indian Tea Association said.

It is not just the tea exporters, who are expected to benefit from such a rupee trading mechanism. The exporters of instant coffee would also benefit from such an initiative, said Ramesh Rajah, President of The Coffee Exporters Association.

Russia, the largest buyer of Indian instant coffees, has increased its purchases by about 36 per cent during the April-June quarter this year at 7,882 tonnes as compared with the same period in the previous year’s 5,785 tonnes.

Coffee exporters to Russia had faced payment issues in the recent past and the rupee trade settlement mechanism may address such issues and benefit the trade.

K G Jagadeesha, Coffee Board CEO and Secretary, expects the shipments to Russia to increase once the rupee-rouble trade mechanism is in place. “There is demand for Indian instant coffee from Russia as other countries have stopped exporting. Russia is looking at India for more agricultural exports,” he said.

COMMENT NOW