The revised rules allow eligible rupee export payments to qualify for foreign trade policy benefits, but GTRI says easier access to rupees and simpler banking processes will be key to wider adoption.
The Directorate General of Foreign Trade (DGFT) has amended the Foreign Trade Policy (FTP) to align it with the Reserve Bank of India’s 2023 foreign-exchange regulations. The changes allow export contracts and invoices to be denominated in any currency, subject to separate rules for countries covered by the Asian Clearing Union (ACU).
For countries outside the ACU, export contracts and invoices can now be denominated in any foreign currency or Indian rupees. Earlier, export earnings generally had to be received in a freely convertible currency.
Eligible rupee payments for exports to countries other than Nepal and Bhutan will now qualify for benefits under the FTP and count towards the fulfilment of export obligations. This effectively puts eligible export earnings received in rupees through approved banking channels on par with payments received in foreign currencies.
Exports financed through EXIM Bank or Government of India lines of credit can also be invoiced in Indian rupees.
Different rules for ACU countries
The Asian Clearing Union is a regional payment arrangement established in 1974 to facilitate trade settlements and reduce the need for repeated transfers of foreign exchange by periodically settling the net obligations of its members.
Its nine members are Bangladesh, Bhutan, India, Iran, Maldives, Myanmar, Nepal, Pakistan and Sri Lanka, represented by their respective central banks or monetary authorities.
For exports to Bangladesh, Iran, Maldives, Myanmar, Pakistan and Sri Lanka, contracts must be denominated in a currency determined by the ACU, while invoicing and settlement will continue to be governed by RBI directions.
Nepal and Bhutan are treated separately, with export contracts denominated and settled in Indian rupees or in accordance with RBI directions.
Iran is also covered by the ACU framework, but trade in sensitive goods and technologies will continue to be governed by paragraph 2.19 of the FTP. The provision covers specified items linked to nuclear activities and nuclear-weapon delivery systems and reflects India’s obligations under UN Security Council Resolution 2231 and relevant International Atomic Energy Agency rules.
Rupee trade could cut conversion costs
Welcoming the changes, the Global Trade Research Initiative (GTRI) said allowing eligible rupee export receipts to qualify for FTP benefits and export obligations could reduce currency-conversion costs and make trade easier with countries facing dollar shortages.
GTRI Founder Ajay Srivastava, however, said regulatory permission alone would not be enough to create large-scale rupee trade.
Foreign buyers need easy access to rupees, while overseas banks need practical ways to use, invest, convert or repatriate their rupee balances, he said. Wider adoption would also require simpler banking procedures, affordable currency hedging, rupee-denominated export credit and ECGC protection.
“Without a supporting system, rupee invoicing may remain a useful facility instead of a widely used trade option,” Srivastava said.
GTRI said exporters receiving rupee payments through RBI-approved banking channels previously faced uncertainty over whether such receipts would qualify for FTP benefits or count towards their export obligations. The revised rules remove this uncertainty by putting eligible rupee receipts on par with foreign-currency earnings.
What could come next
GTRI said India could next look at country-specific rupee settlement arrangements with major trading partners, particularly countries facing foreign-exchange shortages, those importing significant quantities from India or those already accumulating rupees through exports to the Indian market.
It also suggested giving foreign entities easier options to use, invest, convert or repatriate accumulated rupees.
The RBI and DGFT could introduce standard banking procedures covering documentation, KYC requirements, reporting and settlement timelines, GTRI said. Affordable currency hedging, rupee-denominated export credit and ECGC protection on terms comparable with foreign-currency transactions could further encourage companies to use the rupee for international trade.
