Encouraging international trade in Indian rupee (INR) would make the economy less vulnerable to external shocks as it would reduce  foreign exchange demand for settlement of trade flows, mitigate currency risk for businesses, and reduce the need for holding foreign exchange reserves, the Economic Survey has said.

The suggestion is in step with the government’s efforts to promote the rupee trade mechanism with not just Russia, but other trading partners such as Sri Lanka and Mauritius, moving towards the bigger goal of promoting rupee as an international currency .

“It could assist Indian exporters in getting advance payments in INR from overseas clients and in the longer term promote INR as an international currency once the rupee settlement mechanism gains traction,” the Survey pointed out.

Moreover, if the INR turnover rises (from 1.6 per cent) to equal the share of non-US, non-Euro currencies in global forex turnover of 4 per cent, it could be regarded as an international currency, reflecting India’s position in the global economy, it added.

India has been working on putting in place a rupee trade mechanism with Russia to ease the process of buying discounted oil from the country by bypassing the banking sanctions imposed by the West on Moscow following its attack on Ukraine early last year .

It is also implementing the mechanism with Sri Lanka and Mauritius and similar plans with countries such as UAE and Bangladesh may be in the pipeline. 

In July 2022, the RBI permitted invoicing, payment, and settlement of exports/imports in INR. The framework involves invoicing of exports and imports in INR, market-determined exchange rates between the currencies of the trading partner countries, and settlement through specia lRupee Vostro accounts opened with authorised dealer banks in India.

“The framework for international settlement in INR acquires significance against the backdrop of the US Fed aggressively hiking the policy rates and its hawkish stand, the consequent rallying of the US dollar to multi-decade high levels, and concomitant weakening of currencies of various emerging market economies, including the INR,” said the survey.

Protection from currency volatility not only reduces the cost of doing business but also enables better business growth, improving the chances for Indian businesses to grow globally, it pointed out.

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