The Union government will soon make amendments to the foreign trade policy (FTP) to enable exporters to claim export benefits for settling trade in rupees.
These benefits are, so far, available for export payments received in foreign currencies.
After the Reserve Bank of India (RBI) unveiled a mechanism to settle international trade transactions in the local currency on Monday, exporters have been demanding that the Ministry of Commerce and Industry come up with a clarification on the matter.
“Since the central bank has allowed payments for cross-border payment in rupees, minor amendments to the foreign trade policy will have to be made,” a senior government official told Business Standard.
It is not clear whether such changes will be part of the existing FTP or the new policy that the Directorate General of Foreign Trade (DGFT) hopes to unveil in September.
“According to our FTP, export incentives under schemes, such as the Rebate of State and Central Taxes and Levies (RoSCTL) and Remission of Duties and Taxes on Export Products (RoDTEP), are not available for settling trade in rupees, except in the case of Iran.
“As the RBI has announced that trade can be done with any country in rupees, it must announce a change in the (foreign trade) policy,” said Khalid Khan, vice-president, the Federation of Indian Export Organisations (FIEO).
The RBI earlier this week had said that trade in rupees was being allowed to promote growth of global trade with emphasis on exports from India and support the increasing interest of the global trading community in INR.
Banks have to get approval for doing such transactions and the exchange rate between the currencies of the two trading partner countries will be market-determined.
Exporters have cheered the move and said it shall enable trade, especially with sanctions-hit nations, such as Russia.
In the case of Iran, which is also under US sanctions, only two banks — IDBI Bank and UCO Bank — were allowed to process trade settlements in rupees.
The mechanism announced by the central bank, if implemented well, will boost India-Iran trade, they said.
Exporters are currently awaiting detailed guidelines on how the RBI circular will be implemented and said it is too early to understand how swiftly the arrangement shall work.
The government official cited above said the process will take some time to implement.
To start with, Indian banks will have to agree to such an arrangement in place, and this has to be followed by foreign banks’ interest in opening a vostro account in one of the designated banks in India.
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