The modification to the Foreign Trade Policy 2015-2022 comes after the Reserve Bank of India issued guidelines for the settlement of international trade in Indian rupees on July 11, 2022. The central government amended the Foreign Trade Policy 2015-22 to allow for immediate rupee settlement of international trade for export promotion schemes. 

Given the increased interest in the internationalization of the Indian rupee, policy changes have been implemented to facilitate and ease international trade transactions in Indian rupees for Indian EXIM business entities. 

Furthermore, the changes have been notified for the following transactions: 

  1. Imports,
  2. Exports,
  3. Export performance for recognition as Status Holders,
  4. Realization of export proceeds under advance authorization & Duty-Free Import Authorization schemes, and
  5. Realization of export proceeds under export promotion capital goods scheme (EPCG).

Benefits, incentives, and fulfilment of export obligations under the Foreign Trade Policy can now be extended to export payments made in Indian rupees, as announced by the Reserve Bank of India (RBI) on July 11, 2022, when it announced the establishment of a mechanism to settle global trade in rupees. 

All exports and imports may be denominated and invoiced in rupees under the mechanism, with the exchange rate between the currencies of the two trading partners determined by the market. To settle these transactions, authorized Indian banks must open Special Rupee Vostro Accounts with correspondent banks from the trading partner’s country.  

While the mechanism has yet to see its first transaction, UCO Bank and YES Bank have joined forces with Russian lenders as a first step forward. In a speech on October 20, RBI Deputy Governor T Rabi Sankar stated that the central bank was receiving “encouraging responses” from countries interested in participating in rupee-based trading.  

Stakeholders may be skeptical of the mechanism due to concerns about sanctions from Western nations if they enter into agreements with Russian entities; however, the move to allow trade settlement in Indian rupees comes amid increasing pressure on the Indian currency in the aftermath of Russia’s invasion of Ukraine in late February. 

Given the Indian economy’s strength in comparison to global economic growth, this move will elicit an “encouraging response” from a large number of countries interested in participating in rupee-based trading. It is a calculated step toward increasing our Forex.