RBI sets up mechanism to settle trade transactions in Rupees.

• 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. Before putting in place this mechanism, Authorised Dealer (AD) banks shall require prior approval from the Foreign Exchange Department of Reserve Bank of India.
• Forex dealers say the Rupee Payment Mechanism could be used by Indian exporters/importers for their trade with countries such as Russia, Iran and Sri Lanka.

The broad framework for cross border trade transactions in INR under Foreign Exchange Management Act, 1999 (FEMA) is as delineated below:

• Invoicing: All exports and imports under this arrangement may be denominated and invoiced in Rupee (INR).
• Exchange Rate: Exchange rate between the currencies of the two trading partner countries may be market determined.
• Settlement: The settlement of trade transactions under this arrangement shall take place in INR in accordance with the procedure laid down in Para 3 of this circular.
• 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.

The balance in Special Vostro Accounts can be used for:

• Payments for projects and investments.
• Export/Import advance flow management
• Investment in Government Treasury Bills, Government securities, etc. in terms of extant guidelines and prescribed limits, subject to FEMA and similar statutory provision