Thursday 25th July 2024

India Gears Up For Rupee Trade Idea In G20 Meeting

Commerce Secretary Sunil Barthwal on Monday said that the nation would use the G20 platform to further advance the cross-border trade settlement in rupee with the participating nations.

He further stated that the nations that are experiencing troubles with a specific currency or a basket of currencies and are trying to get out of the issues would be the focus of the discussion.

In response to a query on whether India will use the G20 platform to increase rupee trade, Barthwal remarked, “We are interested in improving the trade with respect to the currencies of the countries that are trading (with India). Definitely, we would like to see that rupee trade also happens, particularly with those countries which are facing (currency) issues.”

He addressed the media just a day before the inauguration of the Trade and Investment Working Group (TIWG) meeting of India’s G20 Presidency to be conducted in Mumbai from March 28 to 30.

The G20 Presidency is held by India from December 1, 2022, to November 30, 2023.

The Reserve Bank of India (RBI) built a system to settle international commerce in rupees in July of last year to support the growing interest of the world trading community in the rupee and to encourage the expansion of global trade with a focus on exports from India. On March 14, State Minister for Finance Bhagwat Karad informed Rajya Sabha that India’s central bank, i.e., RBI, had granted authorisation to domestic and foreign Authorised Dealer (AD) banks in 60 cases demanded from 18 different nations for the opening of Special Rupee Vostro Accounts of correspondent banks.

A Vostro account is one that a correspondent bank manages on another bank’s behalf.

Almost 100 delegates from G20 member nations, invitee nations, regional groups, and international organisations will participate in discussions to intensify international trade and investment at the three-day TIWG summit.

Trade financing promotes economic expansion and is essential for preserving global trade flows and reducing risks from tight liquidity. Nearly 80 percent of all global trading uses certain trade finance instruments, among these, such as supply chain financing, letter of credit, invoice discounting, and receivables financing.

The G20 members make up approximately two-thirds of the world’s population, over 75% of global trade, and about 85% of the world’s GDP.

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RBI Permitted Banks Of 18 Countries To Trade In INR

With more nations attempting to reduce the use of dollars in international trade, the Indian rupee is getting closer to becoming a recognised currency. The opening of 60 special rupee vostro accounts in 18 nations, including Russia and Sri Lanka, has been authorised by India’s central bank, the RBI, in order to facilitate the smooth operation of international trade in INR.

According to records, India’s Reserve Bank of India (RBI) had given permission to “domestic and foreign Authorised Dealer (AD) banks in 60 cases for opening SRVAs of banks from 18 nations” for the purpose of settling payments in Indian rupees, as per Bhagwat Karad, India’s Minister of State for Finance.

The minister added that, out of the 18 nations, Russia has been vocal in promoting local currency transactions as part of the larger “de-dollarization” movement. Yet, he continued, India has been promoting the idea of trade in local currency basically to increase exports.

The following 18 nations have been permitted to trade Indian rupees:

1  – Russia

2  – Singapore

3  – Sri Lanka

4  – Botswana

5  – Fiji

6  – Germany

7  – Guyana

8  – Israel

9  – Kenya

10 – Malaysia

11 – Mauritius

12 – Myanmar

13 – New Zealand

14 – Oman

15 – Seychelles

16 – Tanzania

17 – Uganda

18 – United Kingdom.

The figures clearly show a considerable advancement in the development of a system to settle international trading in Indian rupees.

What is SRVA, or Special Rupee Vostro Account?

The SRVA process was initiated in July last year when the RBI published comprehensive guidelines for cross-border commercial transactions in Indian rupees (INR).

The decision has been made to implement a new system for exports and imports that will allow for INR invoicing, payment, and settlement.

Authorized banks in India must open and maintain SRVAs of the banks in the partner trading country in order to settle trade based on new mechanisms.

These accounts maintain the foreign entity’s holding in the Indian bank in INR. The money is credited to this vostro account when an Indian importer pays a foreign trader in rupees.

Likewise, money from this vostro account will be taken out and credited to the regular account of an Indian exporter when they are required to pay for products and services in rupees.

Holders of SRVAs are permitted to invest their excess funds in Indian government securities. The RBI is offering this opportunity to help spread awareness about the new system.

The Indian central bank had stated that “Indian importers conducting imports through this mechanism shall make payment in INR (Indian Rupee), which shall be credited into the special vostro account of the correspondent bank of the partner country, against the invoices for the supply of goods or services from the overseas seller/supplier.”

After the West and European nations implemented sanctions following the commencement of the “special military operation” by Vladimir Putin against Ukraine on February 24, 2022, India has been attempting to encourage the usage of the INR for trade settlement with other countries.

Major Russian banks Sberbank, VTB Bank, and Gazprombank were among the first to receive RBI permission for SRVAs.

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