India eases rules for rupee export payments, seeks to widen trade settlement
The Directorate General of Foreign Trade eased rules governing export contracts, invoices, and payment settlement with countries outside the Asian Clearing Union (ACU)
Exporters selling to non-ACU countries (other than Nepal and Bhutan, which already had special treatment) can now denominate and settle export contracts and invoices in Indian rupees or in foreign currency
Eligible rupee export receipts will now qualify for Foreign Trade Policy benefits and count towards fulfilment of export obligations, on par with foreign-currency receipts
The change amends the Foreign Trade Policy, 2023 to align it with foreign-exchange regulations issued by the Reserve Bank of India permitting broader use of the rupee in international trade
The changes take effect with immediate effect
Asian Clearing Union (ACU) and Why It Matters for Rupee Settlement Rules
The Asian Clearing Union is a regional payment arrangement that allows member central banks to settle intra-regional trade transactions periodically on a net multilateral basis rather than through individual currency conversions for every transaction, reducing foreign-exchange usage among member states.
Key Details
- ACU has nine members: Bangladesh, Bhutan, India, Iran, Maldives, Myanmar, Nepal, Pakistan, and Sri Lanka, represented by their respective central banks
- Its secretariat is located in Tehran, Iran
- Trade between India and ACU member countries is conventionally required to be settled through the ACU mechanism, using the Asian Monetary Unit as the ACU's unit of account, rather than in bilateral currencies outside the arrangement
- Since ACU already provides a settlement channel among these states, the government's rupee-settlement liberalisation was targeted at non-ACU countries, where no equivalent regional clearing mechanism exists
Because ACU membership already governs settlement mechanics between India and its regional trade partners, the new flexibility to invoice and settle in rupees is specifically extended to countries outside the ACU, widening rupee usage into trade corridors not covered by the ACU arrangement.
RBI's Rupee Internationalisation Framework and Special Rupee Vostro Accounts (SRVA)
Internationalisation of the rupee refers to the increased use of the Indian rupee as a currency for cross-border transactions — invoicing, settlement, and investment — reducing dependence on the US dollar and other reserve currencies for India's external trade.
Key Details
- The Reserve Bank of India, through an A.P. (DIR Series) Circular dated 11 July 2022, put in place an additional arrangement for invoicing, payment, and settlement of exports and imports in Indian rupees, using Special Rupee Vostro Accounts (SRVA) opened by Indian bank branches for correspondent banks of partner countries
- Under this mechanism, exporters are paid in rupees credited to the exporter's account through the SRVA route, and importers can settle in rupees debited from the SRVA
- As of the RBI's data, banks in over 20 countries — including Russia, the UK, Germany, Sri Lanka, Mauritius, Singapore, and several African and Central Asian states — have opened SRVAs with Indian banks
- This framework operates alongside India's broader push for rupee trade settlement following sanctions-driven disruptions to conventional dollar-clearing channels in some partner economies
The DGFT's easing of Foreign Trade Policy rules operationalises the RBI's SRVA/rupee-invoicing framework for exporters — ensuring that rupee receipts through this route are not just permitted by RBI but also formally recognised for trade-benefit eligibility and export-obligation fulfilment.
Foreign Trade Policy (FTP) 2023 — Export Obligations and Trade-Policy Benefits
The Foreign Trade Policy is India's overarching framework for regulating and incentivising exports and imports, notified periodically by the Ministry of Commerce and Industry under the Foreign Trade (Development and Regulation) Act, 1992.
Key Details
- FTP 2023 replaced the earlier FTP 2015-20 and, unlike previous policies, has no fixed end date — it is designed to be updated dynamically rather than replaced every five years
- Export incentive and remission schemes under the FTP (such as RoDTEP — Remission of Duties and Taxes on Exported Products) require exporters to demonstrate realisation of export proceeds, historically in freely convertible foreign currency
- The FTP had earlier been amended (2022) to allow rupee-denominated export benefit claims in line with RBI's rupee-settlement mechanism, and the present easing extends this recognition further to non-ACU countries
- "Export obligation" refers to the value of exports an entity must complete against duty-free imports availed under schemes like the Export Promotion Capital Goods (EPCG) or Advance Authorisation scheme
By making eligible rupee receipts count towards trade-policy benefits and export-obligation fulfilment, the amendment removes a structural disincentive that previously nudged exporters toward foreign-currency invoicing even when trade partners preferred rupee settlement.
- ACU membership: 9 countries — Bangladesh, Bhutan, India, Iran, Maldives, Myanmar, Nepal, Pakistan, Sri Lanka; secretariat in Tehran
- RBI's rupee-settlement mechanism (SRVA route) introduced via A.P. (DIR Series) Circular, 11 July 2022
- Over 20 countries' banks have opened Special Rupee Vostro Accounts with Indian banks since 2022
- Nodal authority for the latest change: Directorate General of Foreign Trade (DGFT), Ministry of Commerce and Industry
- Governing policy document: Foreign Trade Policy, 2023
- Scope of the new easing: export contracts/invoices/payments with non-ACU countries (other than Nepal and Bhutan) can now be denominated and settled in rupees or foreign currency