The government on Thursday revised parts of the Foreign Trade Policy (FTP) 2023 to give exporters greater flexibility to invoice overseas transactions and receive export proceeds in Indian rupees. According to reports from The Times of India, Reuters, Investing.com, ETBFSI, Moneycontrol, Business Standard, and Zee News, the Directorate General of Foreign Trade (DGFT) issued a notification stating that two provisions of the FTP had been amended to align with the Foreign Exchange Management (Manner of Receipt and Payment) Regulations 2023. The changes apply to exports to all countries, though applicable provisions differ depending on the destination. As per Zee News, the changes have been notified with immediate effect to remove barriers that previously required export proceeds to be received in freely convertible currencies in most cases, even when invoices could sometimes be issued in rupees. The amendment puts rupee export payments on par with foreign-currency earnings for trade-policy benefits, aiming to promote wider use of the local currency in global trade. The amendment aligns the Foreign Trade Policy with RBI's Foreign Exchange Management regulations issued in 2023, which already allow wider use of the rupee in international payments. The move comes against the backdrop of US President Donald Trump warning BRICS countries against moves to challenge the dollar, including the creation of an alternative currency, and his previous threats of punitive tariffs against countries backing such efforts. However, India has made clear that it does not support a common BRICS currency, with Commerce and Industry Minister Piyush Goyal stating earlier this month that India was not in favour of such a proposal, instead focusing on expanding the international use of the rupee while maintaining existing foreign-currency settlements.
For countries outside the Asian Clearing Union (ACU), exporters can now denominate their contracts and invoices either in Indian rupees or in any foreign currency. As reported by The Times of India, Reuters, Investing.com, ETBFSI, Moneycontrol, Business Standard, and Zee News, previously, export proceeds generally had to be received in a freely convertible currency, even though invoices could in some cases be raised in rupees. According to the Global Trade Research Initiative (GTRI), eligible rupee payments for exports to countries other than Nepal and Bhutan will now qualify for FTP benefits and can be counted towards meeting export obligations. Rupee earnings received through approved banking channels will consequently receive the same treatment as export payments made in foreign currency. According to Zee News, rupee payments received through approved banking channels will now qualify for benefits under the Foreign Trade Policy and count towards fulfilment of export obligations. According to Moneycontrol, exports financed through EXIM Bank or Government of India lines of credit can also be invoiced in Indian rupees. As per Investing.com, rupee export receipts will now qualify for trade-policy benefits and count toward exporters' obligations when processed through approved banking channels. The revised rules remove uncertainty that exporters previously faced over whether rupee payments through RBI-approved banking channels would qualify for FTP benefits or count towards export obligations. The change effectively completes a regulatory process that began in July 2022, when the RBI introduced a mechanism allowing international trade to be invoiced and settled in rupees through Special Rupee Vostro Accounts (SRVAs). The DGFT amendment, notified on Wednesday with immediate effect, does not replace foreign-currency settlements but adds the rupee as an alternative payment route for international trade.
The Asian Clearing Union (ACU) is a regional payment mechanism created in 1974 with 11 members: Bangladesh, Bhutan, India, Iran, Maldives, Myanmar, Nepal, Pakistan, Sri Lanka, Belarus, and Mauritius. According to The Times of India, Reuters, Investing.com, ETBFSI, Moneycontrol, Business Standard, and Zee News, 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 directions issued by the Reserve Bank of India. Nepal and Bhutan are treated separately, with export contracts requiring general denomination and settlement in Indian rupees or according to RBI directions. The ACU enables members to periodically settle net trade obligations, limiting repeated foreign-exchange transfers. Iran is also covered by the ACU framework, but trade in sensitive goods and technologies will continue to be governed by paragraph 2.19 of the FTP. The provision covers specified items linked to nuclear activities and nuclear-weapon delivery systems and reflects India's obligations under UN Security Council Resolution 2231 and relevant International Atomic Energy Agency rules. The DGFT amendment formally recognises eligible export proceeds received in Indian currency for the purpose of claiming FTP benefits and meeting export obligations, closing a regulatory gap that existed since the RBI introduced the framework for rupee-based international settlements in 2022.
As reported by The Times of India, Reuters, Investing.com, ETBFSI, Moneycontrol, Business Standard, and Zee News, the policy change could make rupee settlement more attractive for Indian exporters by reducing the need for currency conversion and potentially lowering associated costs and exchange-rate risks. It could also provide an alternative payment mechanism for trade with countries facing US dollar shortages or difficulties accessing established international payment channels. The expanded framework could be relevant for countries where businesses face limited access to US dollars or encounter difficulties using established international payment channels. For Indian exporters and overseas buyers, settling transactions in rupees provides an additional option instead of converting currencies for every trade transaction through the dollar. However, wider regulatory acceptance alone may not be enough to substantially increase the use of the rupee in global trade. According to GTRI Founder Ajay Srivastava, the DGFT notification removes the uncertainty surrounding the treatment of eligible rupee export receipts. Srivastava emphasized that overseas buyers must be able to obtain rupees easily, while overseas banks need practical options to use, invest, convert or repatriate their balances. He stated that India would now need country-specific settlement arrangements, simpler banking procedures, affordable hedging facilities, rupee-denominated export credit and ECGC protection. Without these supporting mechanisms, he said, rupee invoicing could remain a useful option without becoming a widely adopted method for international trade. The RBI noted in a 2023 report on internationalisation of the rupee that invoicing and settling of international trade transactions in rupee with trade partners with whom India has a trade deficit (say, the oil exporting countries) will in general lead to a reduction in the current account deficit denominated in convertible currencies. Commensurately, there will be a reduced need to maintain large foreign exchange reserves in convertible currencies.
According to The Times of India, Reuters, Investing.com, ETBFSI, Moneycontrol, Business Standard, and Zee News, GTRI noted that regulatory permission alone will not create large-scale rupee trade. Srivastava emphasized that foreign buyers must be able to obtain rupees easily, while overseas banks need practical options to use, invest, convert or repatriate their balances. He stated that India would now need country-specific settlement arrangements, simpler banking procedures, affordable hedging facilities, rupee-denominated export credit and ECGC protection. Without these supporting mechanisms, he said, rupee invoicing could remain a useful option without becoming a widely adopted method of conducting international trade. The think tank also recommended allowing wider uses for accumulated rupee balances, including options to use, invest, convert or repatriate the funds. Foreign buyers may also be reluctant to accumulate large rupee balances because the currency is not fully convertible. Trade imbalances could leave some partner countries with excess rupee balances, while exchange-rate risks and relatively complex banking procedures could further constrain adoption. GTRI suggested that India could next look at country-specific rupee settlement arrangements with major trading partners, particularly countries facing foreign-exchange shortages, those importing significant quantities from India or those already accumulating rupees through exports to the Indian market.
