Background
In order to promote growth of global trade with emphasis on exports from India and to support the increasing interest of global trading community in INR, it has been decided to put in place an additional arrangement for invoicing, payment, and settlement of exports / imports in INR.
Authorized Dealer (AD) Bank should obtain prior permission from Foreign Exchange Department of the Reserve Bank of India (RBI) Central Office at Mumbai.
The (RBI) vide RBI/2022-2023/90 A.P. (DIR Series) Circular No.10 dated July 11, 2022, has issued general framework and guidance under sections 10(4) and 11(1) of the Foreign Exchange Management Act (FEMA), 1999 (42 of 1999) .
Broad framework
1. Invoicing: All exports and imports under this arrangement may be denominated and invoiced in Rupee (INR).
2. Exchange Rate: Exchange rate between the currencies of the two trading partner countries may be market determined.
3. Settlement: The settlement of trade transactions under this arrangement shall take place in INR as per the following process (a) In terms of Regulation 7(1) of Foreign Exchange Management (Deposit) Regulations, 2016, AD banks in India have been permitted to open Rupee Vostro Accounts.
1. For settlement of trade transactions with any country, AD bank in India may open Special Rupee Vostro Accounts of correspondent bank/s of the partner trading country.
2. For settlement of international trade transactions using above mechanism, it has been directed that
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- Indian importers undertaking imports through this mechanism shall make payment in INR which shall be credited into the Special Vostro account of the correspondent bank of the partner country, against the invoices for the supply of goods or services from the overseas seller /supplier.
- Indian exporters, undertaking exports of goods and services through this mechanism, shall be paid the export proceeds in INR from the balances in the designated Special Vostro account of the correspondent bank of the partner country.
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4. Documentation: The export / import undertaken and settled in this manner shall be subject to usual documentation and reporting requirements. Letter of Credit (LC) and other trade related documentation may be decided mutually between banks of the partner trading countries under the overall framework of Uniform Customs and Practice for Documentary Credits (UCPDC) and incoterms.
5. Advance against exports: Indian exporters may receive advance payment against exports from overseas importers in Indian rupees through the above Rupee Payment Mechanism subject to the provisions of Master Direction on Export of Goods and Services 2016 (as amended from time to time).
6. Setting-off of export receivables: ‘Set-off’ of export receivables against import payables in respect of the same overseas buyer and supplier with facility to make/receive payment of the balance of export receivables/import payables, if any, through the Rupee Payment Mechanism may be allowed subject to the provisions of Master Direction on Export of Goods and Services 2016 (as amended from time to time).
7. Bank Guarantee: Issue of Bank Guarantee for trade transactions, undertaken through this arrangement, is permitted subject to adherence to provisions of FEMA Notification No. 8, as amended from time to time and the provisions of Master Direction on Guarantees & Co-acceptances.
8. Use of Surplus Balance: The balance in Special Vostro Accounts can be used for a) Payments for projects and investments, b) Export/Import advance flow management c) investment in Government Treasury Bills, Government securities, etc. in terms of extant guidelines and prescribed limits, subject to FEMA and similar statutory provision.
Change of Foreign Trade Policy 2015-20 (FTP) as amended
Director General of Foreign Trade (DGFT) vide notification number 33/2015-20 has amended the FTP has amended para 2.52 in sync with the above provisions to permit invoicing, payment and settlement of imports and exports in INR
Conclusion
With the issue of above notification the Indian business community can start taking the benefit of unique facility of settlement of trade in INR provided by the Government.
Insertion of Para 2.54(d) under Foreign Trade Policy in sync with RBI Circular
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