Foreign trade policy changes to boost rupee internationalisation, add flexibility for exporters: CII's Sanjay Budhia
The Directorate General of Foreign Trade (DGFT) amended the Foreign Trade Policy (FTP) 2023 to allow export contracts, invoices and payments to be denominated and settled in Indian rupees, on par with foreign currency
Under the amendment, eligible rupee payments for exports (to countries outside the Asian Clearing Union, and excluding Nepal and Bhutan, which have separate arrangements) will now qualify for FTP benefits and count towards fulfilment of export obligations
Industry bodies have described the change as easing invoicing flexibility and reducing currency-conversion friction for exporters
The amendment aligns FTP rules with the Reserve Bank of India's existing foreign exchange regulations on rupee settlement
Rupee Internationalisation and the Vostro Account Mechanism
Rupee internationalisation refers to enabling wider global use of the Indian rupee for invoicing, settlement and investment. The RBI enabled the mechanism for invoicing and settlement of international trade in rupees in July 2022, permitting Indian banks to open Special Rupee Vostro Accounts (SRVAs) for correspondent banks of partner countries to settle trade balances in INR.
Key Details
- RBI circular (July 2022) permitted rupee settlement of international trade via SRVAs, administered under the Foreign Exchange Management Act (FEMA), 1999
- The FTP amendment complements this by ensuring exporters who receive payment in rupees through such mechanisms do not lose access to export incentives/benefits (e.g., under schemes tied to "free foreign exchange" realisation)
- Rupee trade settlement mechanisms exist with several countries, including via SRVA arrangements
The amendment removes a policy gap where exporters realising proceeds in rupees (rather than a "freely convertible currency") risked losing FTP benefits, disincentivising the RBI's rupee-settlement mechanism; the FTP change now makes rupee realisation equivalent to foreign-currency realisation for benefit purposes.
RBI Inter-Departmental Group (IDG) Report on Internationalisation of INR
The RBI's Inter-Departmental Group, chaired by Radha Shyam Ratho, submitted its report on the internationalisation of the rupee, recommending both short-term and long-term measures to expand the rupee's international role, including equitable incentives for exporters using rupee trade settlement.
Key Details
- Report released in 2023; recommended integrating Indian payment systems with other countries, inclusion of Indian government bonds in global bond indices, and expanding SRVA usage
- Explicitly recommended providing "equitable incentives to exporters for rupee trade settlement" — a recommendation this FTP amendment operationalises
- Broader objective: reduce dependence on the US dollar for India's external trade, moderate exchange-rate risk, and support macroeconomic stability
The FTP amendment is a direct policy response to the IDG's recommendation on exporter incentives, translating a committee recommendation into an operative trade-policy rule.
Foreign Trade Policy 2023 and Export Obligation Framework
The Foreign Trade Policy (FTP) 2023, notified by the DGFT (under the Ministry of Commerce and Industry), governs India's export-import regime, including duty exemption/remission schemes (like Advance Authorisation and EPCG) that require exporters to fulfil "export obligations" — a value of exports realised in convertible foreign exchange within a specified period.
Key Details
- FTP 2023 replaced the earlier FTP 2015-20 framework, moving towards a more dynamic, non-expiry policy with periodic updates rather than a fixed five-year cycle
- Export obligation under schemes like Advance Authorisation/EPCG is normally measured against foreign exchange earned; the amendment now allows eligible rupee earnings to count towards this obligation
- Asian Clearing Union (ACU) countries — Bangladesh, Bhutan, India, Iran, Maldives, Myanmar, Nepal, Pakistan, Sri Lanka — are excluded from this specific rupee-benefit provision as they already have separate clearing/rupee arrangements
By amending the export-obligation-linked FTP benefit provisions, the government has closed the gap between RBI's rupee-settlement enablement (2022) and the trade-policy incentive structure that determines whether exporters actually gain from using it.
- FTP amendment allows rupee-denominated export contracts, invoices and payments to be treated on par with foreign currency for FTP benefits
- Excluded: Asian Clearing Union member countries' trade, and rupee receipts from Nepal and Bhutan (governed separately)
- RBI enabled rupee trade settlement via Special Rupee Vostro Accounts in July 2022
- RBI Inter-Departmental Group report on rupee internationalisation released in 2023 (chaired by Radha Shyam Ratho)
- FTP 2023 is administered by the Directorate General of Foreign Trade under the Ministry of Commerce and Industry