These Latin American, African nations are next in line for India’s bilateral currency settlement drive

As India continues to advance its bilateral currency settlement initiative, it is poised to engage with prominent partners in Latin America and Africa, following agreements with the United Arab Emirates (UAE) and Indonesia, Moneycontrol reported.

To enhance sentiment, attract foreign inflows, and reduce India’s reliance on the US dollar, the central bank unveiled a series of measures. One of the key steps taken in facilitating the settlement of international trade transactions in Indian rupees. This move aims to stimulate trade by facilitating transactions in local currencies, with the ultimate goal to internationalise the Indian rupee, according to a government official.

Key nations in these regions, including Brazil, Argentina, South Africa, Senegal, and Tanzania, are expected to be prioritised for India’s bilateral local currency settlement strategy. The initial focus will be on persuading smaller countries to accept rupee-denominated transactions, the official explained as reported by Moneycontrol.

“If we have to push rupee trade, we have to start with smaller nations where it would be easier to give a push rupee internationalisation,” the official stated as reported by Moneycontrol. The plans remain in their infancy and would necessitate further discussions. In the fiscal year 2022-23, India boasted a trade surplus of $3.25 billion with Brazil and $1.39 billion with Tanzania. The trade deficit remains relatively modest, if present at all, with South Africa, Senegal, and Argentina as suggested by commerce ministry data for the period.

India aims to select partners based on their potential for expanded trade and the ability to balance the trade gap between the two nations. The countries in Latin America and Africa selected for this initiative have either trade surpluses or manageable deficits with India. Trade dynamics and the nature of imported and exported products play a pivotal role in determining partner countries. Senegal’s significant import of Indian rice, for instance, positions it as a suitable candidate. India’s exports to these nations span petroleum products, engineering goods, pharmaceuticals, and rice. India imports edible oils from Brazil and Argentina, while South Africa serves as a source of fertilisers, cotton, and toys.

Last month in Delhi, India signed a memorandum of understanding (MoU) with the UAE to settle bilateral transactions in rupees and dirhams. Discussions around local currency settlement also took place with Indonesia during the G20 Finance Ministers and Central Bank Governors meeting in mid-July.

Also read: Will the rupee emerge as a global currency?

Bilateral currency settlement plans with other nations

During the Joint Trade Sub-Commission (JTSC) meeting held in New Delhi on August 8, India engaged in discussions regarding the possibility of establishing a bilateral currency trade settlement with Vietnam. Vietnam stands as India’s fifth-largest trading partner within the Association of Southeast Asian Nations (ASEAN) region, contributing to 11.2 percent of India’s overall trade with ASEAN in the fiscal year 2022-23. This bilateral relationship holds significance, particularly in sectors such as iron and steel, as well as agricultural and animal products, encompassing commodities like meat products, animal fodder, cereals, and marine products, according to an official statement as reported by moneycontrol. Both sides explored avenues to tap into the substantial untapped potential within bilateral trade.

India is also considering neighbouring nations like Bangladesh and Sri Lanka, which are grappling with currency shortages, for its local currency settlement plan.

Also read: Internationalize the rupee while a BRICS currency loses traction

Piyush Goyal, the Union Minister of Commerce and Industry, Consumer Affairs, Food & Public Distribution, and Textiles, participated in the 13th BRICS Trade Ministers’ Meeting virtually, hosted by South Africa as part of its BRICS Presidency on August 7th. The theme for this year’s BRICS is “BRICS and Africa: Partnership for Mutually Accelerated Growth, Sustainable Development, and Inclusive Multilateralism.” During the meeting, Goyal addressed several significant topics, including matters related to the World Trade Organization (WTO), supply chains, digitalisation, Micro, Small, and Medium Enterprises (MSMEs), and the issue of mispricing and under-invoicing.

Of particular concern was the issue of mispricing and under-invoicing, which the Minister highlighted as having a detrimental impact on economies. He noted that India had recognised the importance of addressing this issue during its chairmanship in 2021. Under India’s leadership, this concern was incorporated as an outcome of a Capacity Building Workshop. The Minister applauded the efforts of the South African Presidency for carrying forward this initiative and conducting a workshop that builds upon the groundwork laid by India.