Exporters who settle their trades in rupees will soon be able to take advantage of export incentives and duty rebates under India's foreign trade policy, which promises to boost shipments to countries such as Russia. According to a government official familiar with the situation, the Directorate General of Foreign Trade (DGFT) is expected to issue a clarification in this regard soon, following approval by the Union finance ministry.
Currently, exporters can receive duty drawbacks, export promotion capital goods (EPCG) incentives, and duty and tax rebates under various government schemes such as Rebate of State and Central Taxes and Levies (ROSCTL) and Remission of Duties and Taxes on Export Products (RODTEP) only if payments or export realisations are made in freely convertible currencies such as the dollar, British pound, euro, and yen, whereas the rupee is not. The foreign trade policy (FTP) will be appropriately amended as a result of the clarification to allow exporters to claim export benefits for settling trade in rupees.
"We will issue a clarification shortly. Exporters have raised a valid point. This is a permissive provision. On the condition of anonymity, the government official cited above said, "We are working with the ministry of finance to clarify."
Russia's Gazprombank, according to reports, has opened a special rupee account with the state-owned UCO Bank. The Reserve Bank of India introduced a rupee settlement system for international trade in July, where invoicing, payment, and settlement of exports and imports to all countries can be done in Indian rupees with the central bank's approval. To use the mechanism, banks will need to obtain permission from the RBI.Exporters and importers can use a Special Vostro account linked to the correspondent bank of the partner country for rupee receipts and payments under this mechanism.
Since many banks and four to five countries have expressed interest in settling bilateral trade in the rupee, the RBI stated last month that the process is taking time because it requires extensive vetting at the levels of banks, central banks, and governments.
India's exports to Russia, which is under sanctions, could increase by another $5 billion once the rupee settlement mechanism is operational, according to a study by India's premier trade promotion organisation Federation of Indian Export Organisations (FIEO). According to the report, the main sectors where India's exports to Russia could increase are agriculture, food, pharmaceuticals, and engineering equipment.
With supplies from the European Union nearly halting, particularly for industrial and engineering goods, India may have a significant opportunity.
The mechanism is also intended to facilitate trade with sanctioned countries such as Iran and Russia. Exports from India to Russia fell by 4.72% in August compared to the previous year, down from 13.1% in July. From April to August, New Delhi's exports to Moscow fell 24% to $992 million.
A. Sakthivel, president of FIEO, said, "We hope that the goverment will clarify the benefits on such exports in rupees, which have previously only been granted for export payments received in foreign currency."
Exporters have asked the government to make export benefits from incentive programmes such as RODTEP and EPCG available if trade is settled in rupees.
Imports from Russia increased by 414% to $17.23 billion in the first five months of the current fiscal year. Although crude oil accounted for 85% of total Moscow imports, shipments of sunflower oil, fertilisers, silver, printed books, coriander seeds, and furniture items increased sharply, indicating that New Delhi was steadily forging trade ties with Russia.