InvestorQ : Is it true that the RBI is looking to boost exports with the help of rupee trade?
Katherine Gonsalves made post

Is it true that the RBI is looking to boost exports with the help of rupee trade?

rhea Babu answered.
1 year ago

We heard about the detailed guidelines that RBI had put out to encourage rupee settlement of international trade. The RBI has already issued detailed instruction so that Indian traders can pay for exports and imports in Indian rupees. Currently, Russia is barred from making and receiving payments in dollars as is Iran. Sri Lanka is struggling with its economy in the light of the political and economic crisis. India can boost trade with all these countries provided there is a proper rupee settlement system in place. That is the intent.

With the new rupee settlement system likely to be actioned in the next few weeks, India expects that bilateral trade with Russia and Sri Lanka itself could touch a whopping $9 billion over the next couple of months. It will also smoothen the trade flow for India with Russia and with Sri Lanka. That has two advantages. India does not have to trade with Russia through the Yuan settlement route. Secondly, India also saves on precious foreign exchange for the Indian economy, especially in the light of the recent sharp fall.

Here is a quick background. Post the Russia-Ukraine war and the sanctions imposed on Russia by the US, UK and other Western powers, Russian oil was being boycotted. That is when Russia managed to sell a lot of its surplus oil and gas to countries like India and China at a deeply discounted price. For India, the crude oil imports from Russia jumped five-fold to over $15 billion between February 2022 and July 2022. This has been temporarily run into problems with the payment mechanism. One it is in place, it can again be boosted.

Sri Lanka is a different ball game altogether. It has for long been an important trading partner for India but things changed in the last few months for Sri Lanka. It has been consistently caught in a maze of defaults and liquidity pressures. The economic woes have had their political implications too. However, as Sri Lanka is on the verge of bankruptcy, global banks are not too keen to provide dollar funding. The only alternative is to put in place a robust rupee payment system to create long term trade relationships.

There is a larger role of Russia trade int his picture. As of now, India has refrained from condemning Russia at the UNSC and the UNGA; and rightly so. India justified its purchases on the grounds that a sudden disruption of purchases would jack up world prices and hurt its consumers. India is already contending with a trade deficit of $100 billion in the first 4 months of FY23. Commodity inflation is the last thing India wants. India is looking to prop up its exports to $500 billion in FY23 and Russia and Sri Lanka could be the trigger for that.