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Message: <blockquote data-quote="monson" data-source="post: 27966999" data-attributes="member: 30005"><h2>Move aimed to facilitate trade with Russia, Sri Lanka</h2><img src="https://bsmedia.business-standard.com/_media/bs/img/article/2022-07/12/full/1657566819-5106.jpg" alt="" class="fr-fic fr-dii fr-draggable " style="" />The <a href="https://www.business-standard.com/about/what-is-reserve-bank-of-india" target="_blank">Reserve Bank of India</a> (RBI) has allowed <a href="https://www.business-standard.com/topic/trade" target="_blank">trade</a> settlements between India and other countries, including <a href="https://www.business-standard.com/topic/sri-lanka" target="_blank">Sri Lanka</a> and Russia, in rupees.“In order to promote the growth of global <a href="https://www.business-standard.com/topic/trade" target="_blank">trade</a> with emphasis on exports from India and to support the increasing interest of the global trading community in INR, it has been decided to put in place an additional arrangement for invoicing, payment, and settlement of exports/imports in INR,” the <a href="https://www.business-standard.com/topic/rbi" target="_blank">RBI</a> said in a notification on Monday.Banks have to take approval on doing such transactions.“(The) exchange rate between the currencies of the two trading partner countries may be market-determined,” the <a href="https://www.business-standard.com/topic/rbi" target="_blank">RBI</a> said.Ananth Narayan, associate professor at the S P Jain Institute of Management and Research, told Business Standard: “On first reading, this circular seems geared towards enabling rouble-<a href="https://www.business-standard.com/topic/rupee" target="_blank">rupee</a> trades settled in rupees. The language also seems to envisage alternative financial messaging to SWIFT (Society for Worldwide Interbank Financial Telecommunications), if so needed.”Banks in India are permitted to open Vostro accounts in rupees (Vostro accounts are arrangements between banks across geographies). The <a href="https://www.business-standard.com/topic/rbi" target="_blank">RBI</a> said for settling <a href="https://www.business-standard.com/topic/trade" target="_blank">trade</a> transactions with any country, banks in India might open special <a href="https://www.business-standard.com/topic/rupee" target="_blank">rupee</a> Vostro accounts of correspondent bank/s of the partner-country in trading.“Indian importers undertaking imports through this mechanism shall make payment in INR 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,” the RBI said.Indian exporters sending out goods and services through this mechanism should be paid in rupees from the balances in the designated special Vostro account of the correspondent bank of the partner country, the notification said.“At first glance, the move clearly looks like it is aimed at facilitating easier trade with <a href="https://www.business-standard.com/topic/sri-lanka" target="_blank">Sri Lanka</a>. The step to bring about denomination in rupees (for invoicing of exports and imports) definitely suggests that it is aimed at other countries in our neighbourhood so as to remove the dollar exchange rate risk. There is also the element of facilitating trade with Russia, which is also a factor,” a senior economist with a large bank said.According to the Sri Lankan High Commission, in 2020 India was Sri Lanka’s second-largest trading partner with bilateral merchandise trade amounting to around $3.6 billion.“The rupee has not weakened against every currency. In fact, it has strengthened against the currencies of most major countries. It seems like it is aimed at curbing that currency volatility. In principle, this is a good step because it gives more flexibility to both importers and exporters,” said Rahul Bajoria, managing director and chief India economist, Barclays.The RBI has said Indian exporters may receive advance payment in rupees through this mechanism.“Before allowing any such receipt of advance payment against exports, Indian Banks shall ensure that available funds in these accounts are first used towards payment obligations arising out of already executed export orders / export payments in the pipeline,” the notification said.Regarding the use of its surplus balance, the RBI said it could be used for capital and current account transactions in accordance with mutual agreements. The balance in special Vostro accounts can be utilised for payments for projects and investments, export and import advance flow management, and investment in government securities, the central bank said.- <a href="https://www.business-standard.com/article/finance/rbi-allows-settlement-in-rupee-to-settle-trade-with-russia-sri-lanka-122071101185_1.html" target="_blank">https://www.business-standard.com/article/finance/rbi-allows-settlement-in-rupee-to-settle-trade-with-russia-sri-lanka-122071101185_1.html</a></blockquote>

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