India, more modest countries talk exchange through Rupee accounts
India is in talks with about a dozen smaller countries as the government seeks to expand bilateral trades through bespoke rupee accounts and internationalise indigenous payment modes. The object is to bypass the dollar-denominated trades through baby steps and creating an alternative payment ecosystem other than the global SWIFT platform.
They include African countries such as Djibouti, Zimbabwe, Malawi, Ethiopia and Sudan, said people familiar with the matter.
The Reserve Bank of India (RBI), finance ministry and National Payment Corp. of India (NPCI) did not comment on the matter. The Indian Economic Trade Organization (IETO) and NPCI are primarily engaged in such cross-border dialogue before it reaches the regulators. For example, IETO held a meeting of all Common Market for Eastern and Southern Africa (Comesa) ambassadors in Hyderabad last week. Senior ministry of external affairs and Telangana government officials were present. Madagascar also participated.
“We are engaging with a group of smaller countries which may be interested in bilateral trades via dedicated rupee account,” said Asif Iqbal, president, IETO. “We are helping to kickstart bilateral talks after which we will make a pitch for the UPI payment system involving NPCI. Such baby steps will help the rupee gain international clout gradually through non-dollar bilateral trades.”
The Unified Payments Interface (UPI) developed by NPCI is the country’s flagship payment system and has earned accolades across the world.
Cereals, sugar and plastic products are part of the country’s trade with Djibouti. Such transactions, if routed through any dedicated rupee account, can be settled in local currencies. Djibouti’s franc is equal to about half a rupee.
Similarly, trade with Ethiopia, Namibia, Cuba and Kenya could be directly settled in Indian rupees against birrs, Namibian dollars, pesos and shillings, respectively.
The RBI and NPCI will be involved in sorting out the exchange rate and payment technicalities once strategic partnerships between countries are agreed upon.
To be sure, current trade volumes are insignificant with these smaller countries when compared with giants such as the US, UK or even Russia. But it would mark a start and grow to become potentially significant with the addition of more countries.
Sudan, which imports pharmaceutical products and confectionery among other items, could settle payments directly in rupees against its pound. While the payment settlement mechanism with Bangladesh is being fast tracked, it has likely slipped into the slow lane with Sri Lanka due to the turmoil there.
India trades in multiple items including food, oil seeds and garments with Bangladesh. However, payment settlement between rupees and the Bangladeshi taka may be capped at Rs 5 lakh amid apprehensions of possible misuse.
Alongside, the Indian authorities are also pushing for wider acceptance of the homegrown Rupay card so that it gains global recognition.