Rupee-denominated trade made eligible for export promotion, obligation schemes

Source: The post is based on the article “Rupee-denominated trade made eligible for export promotion, obligation schemes” published in The Hindu on 10th November 2022.

What is the News?

The Government of India has expanded the norms for incentives and export obligations under the Foreign Trade policy to cover foreign trade transactions settled in rupees.

Background

In July 2022, RBI announced the setting up of a mechanism to settle global trade in rupees. 

Under the mechanism, all exports and imports may be denominated and invoiced in rupees, with the exchange rate between the currencies of the two trading partner countries to be market determined. 

To settle these transactions, authorized Indian banks have to open Special Rupee Vostro Accounts of correspondent banks of the partner trading country.

What has been announced now?

The government has announced that exporters settling trade in rupee terms will now be able to access export incentives or duty rebates.

Before this, incentives to exporters in the form of duty drawbacks, export promotion capital goods(EPCG) incentives and advance authorization schemes were available only if payments or export realization came in freely convertible currencies. These are the US dollar, British pound, euro and Japanese yen.

WRupee-denominated trade made eligible for export promotion, obligation schemess the significance of this decision?

Allowing trade settlements in the rupee under the various export promotion schemes should help boost exports and signal ‘internationalization of the domestic currency’. These are also early steps towards 100% convertibility of the Indian rupee.