Key Takeaways
- Indian exporters can now settle eligible overseas sales in rupees.
- The revised rules align the export policy with RBI foreign exchange regulations.
- Rupee-Based Export Payments use will depend on overseas banks and buyers.
India has removed a regulatory barrier that had limited the use of the rupee for settling overseas export sales. The Directorate General of Foreign Trade (DGFT) amended the Foreign Trade Policy 2023 on Thursday, allowing export contracts, invoices, and payments with countries outside the Asian Clearing Union (ACU) to be denominated and settled in Indian rupees or foreign currencies.
DGFT aligns export rules with RBI framework
The DGFT has amended 2 provisions of the Foreign Trade Policy to align export rules with the Reserve Bank of India’s foreign exchange framework. The change allows eligible exporters to receive export proceeds in rupees while remaining eligible for benefits under the Foreign Trade Policy and meeting applicable export obligations.
Earlier, export proceeds generally had to be realised in a freely convertible foreign currency, even when exporters could invoice overseas buyers in Rupee-Based export payments under certain conditions. The revised framework removes this difference between trade policy rules and the existing foreign exchange framework.
The revised provisions apply to exports to countries outside the ACU. Rupee receipts from Nepal and Bhutan remain subject to separate arrangements. Eligible transactions must also be routed through authorised banking channels.
The change gives Indian exporters greater flexibility in deciding how overseas transactions are settled. It could also support trade with countries where access to US dollars and other major foreign currencies is limited.
For Indian businesses, Rupee-Based export payments settlement can reduce the need to convert export receipts into foreign currency when buyers are willing and able to pay in Indian currency. This can also provide another settlement option for companies dealing with markets that face foreign currency shortages.
Overseas demand will determine rupee trade growth
The regulatory change does not automatically mean that the rupee will become widely used for international trade. Overseas buyers need practical access to the currency, while banks outside India need systems that can support rupee transactions and balances.
The Rupee-Based export payments also remains subject to limits on its international convertibility. This can affect the willingness of overseas banks and companies to hold significant rupee balances.
Greater use of the currency may depend on country-specific payment arrangements, banking access, and the availability of affordable hedging options. Export credit and insurance products linked to rupee transactions could also influence adoption among Indian exporters.
The latest rules have particular relevance for companies selling goods and services to markets where buyers have difficulty obtaining freely convertible currencies. If those buyers can obtain rupees through suitable banking channels, exporters may have another option for receiving payments.
The ACU framework remains separate from the revised arrangements. The regional payment system includes Bangladesh, Iran, the Maldives, Myanmar, Pakistan, and Sri Lanka. It allows participating countries to settle trade obligations through a common payment mechanism.
The DGFT amendment gives exporters a wider choice for eligible transactions outside that framework. Its practical impact will depend on how many overseas buyers and banks choose to use the rupee.
For Indian exporters, the immediate change is greater flexibility in receiving eligible export payments. The wider use of the rupee will depend on banking infrastructure, currency access, and demand from international trading partners.
