The Reserve Bank of India announced an additional framework for invoicing, payment, and settlement of exports/imports in Indian rupees. The central ba...nk said the measure is taken to promote the growth of global trade with emphasis on exports from India and to support the increasing interest of the global trading community in the Indian rupee.

The RBI said the broad framework for cross-border trade transactions in the Indian rupee under Foreign Exchange Management Act, 1999 (FEMA) includes that all exports and imports under this arrangement may be denominated and invoiced in the Indian rupee, and the exchange rate between the currencies of the two trading partner countries may be market-determined, and the settlement of trade transactions under this arrangement shall take place in Indian rupee.

Accordingly, for settlement of trade transactions with any country, the authorised dealer banks in India may open Special Rupee Vostro Accounts of correspondent bank/s of the partner trading country. In order to allow settlement of international trade transactions through this arrangement, the RBI said that Indian importers undertaking imports through this mechanism shall make payment in the rupee which shall 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 /supplier.

Indian exporters, undertaking exports of goods and services through this mechanism, shall be paid the export proceeds in rupee from the balances in the designated Special Vostro account of the correspondent bank of the partner country. The central bank’s move isn’t aimed at any particular country — sanctioned or otherwise — and all trading partners of India can choose to adopt this mechanism on a bilateral basis.

Although the objectives and rationale of the measure have been explained in the circular, there is no conceptual clarity amongst the market users.

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