MUMBAI: The Reserve Bank of India (RBI) on Thursday unveiled measures to liberalise the use of Indian Rupee (INR) and other national currencies for cross-border transactions.
The move aims to encourage trade settlement in INR at a time when the domestic currency has been under pressure, touching a record low of Rs86.70 per US dollar on January 13.
Key announcements
Expanded use of INR accounts for non-residents: Overseas branches of authorised dealer (AD) banks can now open INR accounts for non-residents to settle all permissible current and capital account transactions with Indian residents.
Non-resident INR transactions: Non-residents can use balances in repatriable INR accounts, such as Special Non-resident Rupee Accounts (SNRR) and Special Rupee Vostro Accounts (SRVA), for bona fide transactions with other non-residents.
Foreign Investments via INR accounts: Non-residents can utilise balances in these INR accounts for foreign investments, including foreign direct investment (FDI), in non-debt instruments.
Exporters’ flexibility: Indian exporters are now permitted to open accounts in foreign currencies overseas to settle trade transactions, including receiving export proceeds and using these funds for import payments.
Context and relevance
The decision follows a review of the Foreign Exchange Management Act (FEMA) regulations of 1999, undertaken by the RBI in consultation with the central government.
This initiative builds on earlier efforts to promote INR in global trade, such as the introduction of the Special Rupee Vostro Account (SRVA) mechanism in July 2022.
Since then, several foreign banks have opened SRVAs with Indian banks, facilitating trade settlement in INR.
RBI has also signed Memoranda of Understanding (MoUs) with the central banks of the UAE, Indonesia, and the Maldives to encourage transactions in local currencies, including INR.
Significance of the move
Reducing dollar dependence: By promoting INR in cross-border transactions, the RBI aims to reduce reliance on the US dollar, which can shield the economy from external shocks and currency volatility.
Boost to trade and investment: Liberalised regulations enable smoother trade and investment flows, potentially increasing foreign participation in Indian markets.
Support amid currency pressures: With the rupee under pressure, these measures could provide stability by enhancing INR demand in international transactions.
Strategic partnerships: Agreements with countries like the UAE, Indonesia, and Maldives reflect a broader push to position INR as a viable currency for international trade.
These steps mark a continuation of the RBI’s efforts to integrate INR into the global trading ecosystem, enhancing its relevance in cross-border transactions while addressing immediate economic challenges.
