India eases rupee trade rules, offers exporters an alternative to dollar deals; what it means

In a bid to drive greater adoption of the rupee for trade settlement purposes, the government on Thursday revised parts of the Foreign Trade Policy to give exporters greater flexibility to invoice overseas transactions and receive export proceeds in Indian rupees.The changes apply to exports to all countries, although the applicable provisions differ depending on the destination.The Directorate General of Foreign Trade (DGFT) said in a notification that two provisions of the Foreign Trade Policy (FTP) 2023 had been amended “to align the provisions relating to denomination of export contracts and eligibility for FTP benefits in respect of making exports in Indian rupees with the Foreign Exchange Management (Method of Receipt and Payment) Regulations, 2023.”For countries outside the Asian Clearing Union (ACU), exporters can now denominate their contracts and invoices in Indian rupees or any foreign currency. Previously, export earnings generally had to be received in a freely convertible currency.

What does this mean?

Economic think tank Global Trade Research Initiative (GTRI) said the change means eligible rupee payments for exports to countries other than Nepal and Bhutan will now qualify for FTP benefits and can also be counted towards meeting export obligations.Accordingly, rupee receipts received through authorized banking channels will be treated the same as export payments made in foreign currency, GTRI said. Exports financed through EXIM Bank or Government of India lines of credit can also be invoiced in rupees.The ACU is a regional payment mechanism created in 1974 to facilitate trade agreements between its members and reduce the need for repeated foreign exchange transfers by periodically settling their net obligations.The group has nine members: Bangladesh, Bhutan, India, Iran, Maldives, Myanmar, Nepal, Pakistan and Sri Lanka. Each country is represented by its central bank or monetary authority.Under the amended provisions, export contracts involving Bangladesh, Iran, Maldives, Myanmar, Pakistan and Sri Lanka must use a currency specified by the ACU. However, the notification allows invoicing and settlement to also follow the instructions issued by the Reserve Bank of India.“Nepal and Bhutan are treated separately. Export contracts with these two countries generally have to be denominated and settled in Indian rupees or as directed by the RBI,” GTRI founder Ajay Srivastava said.Iran remains covered by the ACU framework, but transactions involving sensitive goods and technologies must continue to follow paragraph 2.19 of the FTP.“This provision covers specific elements linked to nuclear activities and nuclear weapons delivery systems and reflects India’s obligations under UN Security Council Resolution 2231 and relevant rules of the International Atomic Energy Agency,” it said.The amendment aligns the FTP with the RBI’s foreign exchange management regulations issued in 2023, which had already expanded the scope of use of the rupee in international payments.Previously, exporters receiving payments in rupees through RBI-approved banking channels may have doubts as to whether such receipts would qualify for FTP benefits or count towards their export obligations. The revised provisions address that uncertainty by treating eligible rupee earnings at par with export earnings received in foreign currency, Srivastava said.Using the rupee for settlement could reduce currency conversion expenses and reduce foreign exchange exposure for Indian exporters. The agreement could be particularly useful for trade with countries facing dollar shortages or difficulties accessing established international payment systems, he said.

International use of the rupee

According to GTRI, the move could also help expand the international use of the rupee by allowing Indian exporters and foreign buyers to settle transactions without necessarily relying on the US dollar or other freely convertible currency.It welcomed the notification, saying it removes significant uncertainty and gives eligible rupee export earnings the same status as foreign currency earnings.“But regulatory permission alone will not create large-scale rupee trading.Foreign buyers need to be able to obtain rupees easily, while foreign banks need convenient options to use, invest, convert or repatriate their balances,” he said.Srivastava said India would now need country-specific settlement agreements, simpler banking processes, affordable hedging services, rupee-based export credits and ECGC protection.Without these support mechanisms, he said, rupee invoicing could remain a useful option for exporters without becoming a widely adopted method of conducting international trade.