International Trade Settlement in Rupee

Trade News

02 March 2023 • 5 min read

International Trade Settlement in Rupee

Raghav Sand

The policy for settlement of cross-border trade transactions in rupee has the potential to bring long-term fundamental benefits in India’s international trade and act as a risk management tool for the RBI.

As the U.S. dollar gains strength globally, India’s import bill and the resultant trade deficit are increasing drastically.

To promote the use of Indian Rupee (INR) for international transactions, the Reserve Bank of India (RBI) had brought out a circular in July 2022. In line with the framework suggested by the RBI, the Ministry of Commerce has amended the relevant portion in the Foreign Trade Policy (FTP) on 9th November 2022.

The Government of India has allowed settlement of international transactions in INR, which includes invoicing, payment and settlement of imports and exports in INR.


The updated provisions have been notified for the following sections:

a) Import and export

b) Export performance for recognition of status holders

c) Realisation of export proceeds under advance authorisations

d) Duty-free import authorisation schemes

e) Realisation of export proceeds under export promotion capital goods

The authorised dealer (AD) banks shall require approval from the RBI central office in Mumbai before putting in place the mechanism to facilitate international trade settlement in INR.

Rupee Trade Settlement Framework

The framework for international transactions in INR under Foreign Exchange Management Act, 1999 (FEMA) is as described below:

a) Invoicing: All imports and exports under this process may be denominated in INR.

b) Rate of exchange: The rate of exchange between the currencies shall be determined by market operations.

c) Settlement: The AD banks in India have been allowed to open rupee vostro accounts of correspondent bank/s of the partner trading country.


To allow settlement of cross-border trade transactions through this arrangement, it has been decided that:

i) Indian exporters availing settlement of transactions thorough this arrangement shall be paid in INR from the balances in the special vostro account of correspondent bank of the partner nation.

ii) Indian importers making payment under this mechanism shall make payment in INR. The proceeds shall be credited in the special vostro account of the correspondent bank of partner nation against invoices of supply of goods.

Rupee Trade Settlement: Documentation

The documentation and reporting requirements under rupee trade settlement shall involve the usual paperwork. Things like letter of credit (LC) and other requirements shall be mutually decided by banks of the trading partner countries under the overall framework of Uniform Customs and Practice for Documentary Credits (UCPDC) and incoterms.

Logic Behind Trade Settlement in Rupee

At present, 60% of India’s import-export payments are made in U.S. dollars. As per data from the RBI, this figure stands at 86% in the case of imports. Any shift from the present mechanism will result in saving of foreign exchange reserves.

Let us try to understand the motivation for expanding the scope of trade settlement in INR. From April 2020 to March 2021 India’s bilateral trade with Russia amounted to $8.1 billion. As per data released by the Ministry of Commerce, the trade between India and Russia in April-August 2022 has surged to $18.2 billion.


As per estimates, if India pays for these imports in INR, it will result in saving dollar outflows of $30-36 billion. Even a limited rupee settlement window can lessen the dollar outflow to a great extent.

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