DGFT eases rupee trade rule for exporters
The Directorate General of Foreign Trade (DGFT) amended provisions of the Foreign Trade Policy (FTP) 2023 relating to export contract invoicing and eligibility for FTP benefits.
Rupee payments received by exporters through approved banking channels — for exports to any country other than Nepal and Bhutan — are now explicitly eligible for FTP benefits and count towards fulfilment of export obligations.
Previously, exporters receiving payment in Indian Rupees through Reserve Bank of India (RBI) approved channels faced uncertainty over whether such receipts would qualify for incentives or count toward export obligation targets.
The change places eligible rupee earnings on par with foreign-currency earnings for the purposes of trade benefits, supporting the broader push toward rupee-denominated trade settlement.
Foreign Trade Policy (FTP) 2023 and the Role of DGFT
The Foreign Trade Policy is India's overarching framework for regulating and promoting exports and imports, administered by the DGFT under the Ministry of Commerce and Industry, pursuant to the Foreign Trade (Development and Regulation) Act, 1992.
Key Details
- FTP 2023 replaced the earlier FTP 2015-20 (extended repeatedly) and, unlike previous five-year policies, was notified without a fixed end date, to allow continuous updates.
- DGFT issues export/import incentives (e.g., duty exemption/remission schemes) and sets "export obligation" requirements that exporters must fulfil to retain benefits under schemes like Advance Authorisation and EPCG (Export Promotion Capital Goods).
- Export contracts must ordinarily be denominated and settled either in freely convertible foreign currency or Indian Rupees for most destinations; Nepal and Bhutan have a distinct rupee-settlement regime given India's currency arrangements with them.
- This amendment falls under DGFT's regular power to issue Public Notices/Notifications amending FTP provisions without needing a fresh Parliamentary Act.
The amendment operationalises the FTP's incentive architecture for rupee-invoiced trade, closing a gap where exporters realising payment in rupees (rather than dollars or other foreign currency) were unsure if they could still claim FTP-linked benefits.
RBI's Rupee Trade Settlement Mechanism (Special Vostro Accounts)
In July 2022, the RBI introduced an additional mechanism for invoicing, payment, and settlement of exports/imports in Indian Rupees, using Special Rupee Vostro Accounts (SRVAs) opened by Indian banks for correspondent banks of partner trading countries.
Key Details
- Notified via RBI A.P. (DIR Series) Circular No. 10, dated July 11, 2022, under the Foreign Exchange Management Act (FEMA), 1999.
- Under the mechanism, Indian banks open SRVAs for foreign banks; an Indian importer pays in rupees into the account, and an Indian exporter is paid in rupees out of the same account — settling trade without needing to convert through a third currency (like the US dollar).
- The mechanism forms part of India's broader "rupee internationalisation" push, informed by the RBI's Inter-Departmental Group (IDG) report (constituted December 2021) on internationalisation of the Indian Rupee.
- Several countries facing dollar shortages or sanctions-related payment constraints have opened SRVA arrangements with Indian banks since 2022.
The DGFT's FTP amendment is the trade-policy counterpart to RBI's 2022 SRVA mechanism — RBI enabled the payment channel, and this amendment ensures exporters using that channel are not disadvantaged in claiming trade incentives, together strengthening the ecosystem for rupee-settled exports.
- Governing framework: Foreign Trade Policy (FTP) 2023, administered by DGFT under the Foreign Trade (Development and Regulation) Act, 1992.
- Rupee-payment eligibility for FTP benefits now applies to exports to all countries except Nepal and Bhutan (which have a separate rupee-settlement regime).
- RBI's rupee trade settlement mechanism (Special Rupee Vostro Accounts) was introduced via Circular No. 10, dated July 11, 2022, under FEMA, 1999.
- RBI's Inter-Departmental Group on rupee internationalisation was constituted in December 2021.
- The amendment removes prior uncertainty over whether rupee receipts count toward "export obligation" fulfilment under schemes like Advance Authorisation/EPCG.