It’s Wednesday, which means it’s time to take stock of the week so far, draw on reserves, and soldier on (and uncover some facts while at it). Today, we dissect the RBI’s recent move to allow & encourage #foreigntrade payments to be made in INR. (1/8)
It’s a long-term plus for the Indian #economy and good news for the long-term investor. So, grab that coffee from the break room, and let’s delve into the long and short of it. (2/8)
The #RBI recently issued a circular that detailed an ‘additional arrangement’ for invoicing, payment, and settlement of #exports and #imports using the Indian #rupee as currency. (3/8)
What that means is that Indian #importers can now make payments in rupees against invoices for the supply of goods or services from #overseas sellers. Meanwhile, Indian exporters will be paid in rupees from the balances of the partner country. (4/8)
How will this work? Well, these arrangements largely work out based on the relationship between India and the country we are buying or selling from. As they say, relationships are at the heart of everything. (5/8)
Essentially, this move will make the medium of exchange the rupee instead of the #dollar. That plan makes sense (and cents) because we might have bang for the proverbial buck right now, but dollar reserves are a limited supply. (6/8)
Not just that, we are dependent on imports for a lot of things, with most of our problems in this area stemming from #oil imports. So far, this has had a major impact on our foreign policy around sensitive issues like #Russia. (7/8)
The truth is that, till we go green in a real way, we’ll need to somehow pay for our oil. RBI’s move is helping with that. Trade in rupees reflects an adaptive, foresighted central bank, and helps us build up a dollar reserve, which is never a bad thing. (8/8)
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