The Reserve Bank of India (RBI) has enabled international trade settlements between India and other countries to be carried out in rupees, effective 11 July, including transactions with Russia and Sri Lanka.

This move is aimed at easing steel and coking coal transactions between India and Russia, sources tell Kallanish.

However, neither the RBI nor the steel ministry has commented on the Russian angle.

“In order to promote growth of global trade with an emphasis on exports from India and to support the increasing interest of the 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,” RBI informs in a circular. “Before putting in place this mechanism, AD banks [authorised dealer banks] shall require prior approval from the Foreign Exchange Department of Reserve Bank of India, Central Office at Mumbai.”

According to the RBI, the export/import undertaken and settled in this manner will be subject to usual documentation and reporting requirements. Letters of credit 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.

Indian exporters may receive advanced payment against exports from overseas importers in Indian rupees through the above Rupee Payment Mechanism, it adds.

“Russia enjoys a trade surplus with India,” says financial market expert and professor Ananth Narayan. “Having foreign currency assets captive in rupee might appeal to Russia and India.”

Following the invasion of Ukraine by Russia, India has imported a large quantity of coking coal and steel from Russia. The RBI mechanism will allow Russia to place its product in India without using established international payment mechanisms that operate in dollars. This is especially the case after transactions from and with Russia were banned from SWIFT.