- Rupee invoicing facilitates trade in Indian rupees, which has manifold benefits, including lowering transaction costs and promoting international trade.
- Countries such as Russia, Saudi Arabia, Nigeria, and the UAE hold potential for trade settlement in rupee.
- The effectiveness of rupee trade ultimately depends on factors such as net trade deficit or surplus, the extent of trading in rupees, and geopolitical situations.
Invoicing, payment and settlement of trade in Indian rupees became a buzzword post the July 2022 RBI circular. The new Foreign Trade Policy (FTP) 2023 aims to boost exports with the help of rupee invoicing. The policy facilitates invoicing of exports and imports in rupee, market-determined exchange rates between currency pairs of the trading partners, and trade settlement via Special Rupee Vostro Account (SRVA).
Benefits of Rupee Invoicing:
The benefits of rupee invoicing are manifold, especially during geopolitical unrest and economic sanctions. It leads to lowering of transaction costs, greater price transparency, quick settlement time, promotion of international trade, reduction in hedging expenses, and reduced cost of holding foreign reserve by the RBI. Most importantly, it paves the way for internationalisation of the rupee.
Countries that Hold Potential for Trade Settlement in Rupee:
Analysis shows that invoicing in rupee would be more favourable with trade partners such as Russia, Saudi Arabia, Nigeria and the UAE, where India is a large importer and potential exists for Indian exports as well. The effectiveness of rupee trade ultimately depends on whether India is running a net trade deficit or surplus with the participating trading partners, as well as the extent of trading in rupees in comparison to the total bilateral trade.
Momentum Gaining for Trade Settlement in Rupee:
India's policy of facilitating trade in rupees has been gaining momentum, with the total number of SRVAs reaching 60 in a span of seven months. Eighteen countries have opened SRVAs to facilitate overseas trade in rupee. Of these countries, India recorded a trade deficit with eight — Botswana, Germany, Guyana, Malaysia, Myanmar, Oman, Russia and Singapore — in FY22.
Rupee invoicing has the potential to become a game-changer for India's trade. The new Foreign Trade Policy (FTP) 2023 aims to thrust exports on the wheels of rupee invoicing. However, the effectiveness of rupee trade ultimately depends on various factors such as net trade deficit or surplus, the extent of trading in rupees in comparison to the total bilateral trade, and geopolitical situations.