Rupee trade: India has taken another step towards making the rupee easier to use in international trade. On August 20, the Directorate General of Foreign Trade amended the Foreign Trade Policy to give exporters greater freedom to invoice overseas sales and receive export proceeds in rupees. For countries outside the Asian Clearing Union, contracts and invoices may now be denominated in either foreign currency or rupees, and proceeds may be realised in either. The amendment also broadens the rupee receipts that qualify for Foreign Trade Policy benefits and fulfilment of export obligations.
The change is useful, although it does not mark the beginning of rupee trade. The Reserve Bank of India introduced its current framework for invoicing and settling international trade in rupees in July 2022 through Special Rupee Vostro Accounts, or SRVAs. Later that year, the government amended the trade policy to allow eligible rupee-settled exports under this mechanism to receive export benefits. The latest DGFT notification updates and widens those provisions to bring them into line with the RBI’s Foreign Exchange Management regulations on receipt and payment.
READ | Rupee faces sustained pressure as capital flows weaken
The significance lies in the direction of policy. India is trying to make the rupee a usable currency for cross-border commerce without setting itself the implausible task of replacing the dollar. The relevant test is whether more businesses can conduct a transaction without first converting into dollars merely because the international payments system has traditionally required them to do so.
Rupee settlement gets a wider channel
Under the 2022 arrangement, overseas correspondent banks could maintain SRVAs with authorised dealer banks in India. Indian importers could pay rupees into these accounts, while Indian exporters could receive rupees from the balances held in them. The August 2026 amendment moves beyond the old SRVA-specific formulation. Eligible rupee export proceeds received through banking channels into rupee accounts of non-residents opened under the relevant FEMA regulations can now qualify for FTP benefits. Nepal and Bhutan continue under separate arrangements, while exports to Iran remain subject to additional FTP requirements.
For an exporter, the immediate benefit is greater choice. If an overseas buyer is willing to contract in rupees, the Indian firm need not insist on dollars or euros merely to preserve eligibility for trade-policy benefits. Where the contract itself is rupee-denominated, much of the exchange-rate risk shifts away from the Indian exporter. That can matter for businesses operating on margins too thin to absorb large currency movements or substantial hedging costs.
The opportunity may be greater in markets where access to hard currency is constrained or where repeated conversions add to transaction costs. Rupee settlement provides another route. Whether businesses use it will depend on the economics of each transaction.
READ | Rupee weakness is not RBI’s biggest currency risk
Rupee trade: The import side matters more
The harder issue emerges when India buys more from a trading partner than it sells. An oil or commodity exporter accepting rupees will accumulate rupee balances unless it can spend or invest them. A settlement mechanism works only for as long as the recipient considers the currency worth holding.
This is why the investment side of rupee internationalisation matters as much as the payments mechanism. The RBI initially allowed surplus SRVA balances to be used for permissible transactions and investment in government securities. In October 2025, it widened the options to include specified bonds, non-convertible debentures and commercial paper issued by Indian companies.
That makes rupee receipts more useful. An overseas bank or company is unlikely to accumulate large balances in a currency if the money has few productive destinations. The deeper the market in which those balances can be invested, and the easier it is to hedge or eventually repatriate them, the stronger the case for accepting rupees in the first place.
There is also a potential external-sector benefit, although it needs to be stated carefully. Paying for some imports in rupees does not reduce India’s underlying trade deficit. It can, however, reduce the amount of convertible foreign currency needed to settle that part of the deficit. The RBI’s 2023 report on internationalisation of the rupee argued that wider rupee settlement with deficit trading partners could, over time, reduce the need to maintain as large a stock of reserves in convertible currencies. That is a long-term possibility, not an immediate consequence of the DGFT amendment.
READ | Rupee outlook hinges on monsoon, oil and RBI support
Regulation is no longer the main constraint
India has already begun building bilateral infrastructure for local-currency settlement. The RBI has arrangements with the central banks of the UAE, Indonesia, Maldives and Mauritius to facilitate invoicing and settlement in local currencies. Some trade settlement in rupees has followed.
The next obstacles are more practical. Overseas businesses need access to rupee liquidity at reasonable cost. Banks need workable correspondent relationships. Firms need hedging markets that allow them to manage rupee exposure. Investors must be able to deploy balances in Indian assets without excessive procedural friction.
These conditions cannot be created through a trade-policy notification alone. They depend on the depth of Indian financial markets and the confidence of non-residents that rupee assets can be bought, sold and moved with reasonable ease.
This is also where comparisons with the dollar become unhelpful. The dollar was on one side of 89.2% of global foreign-exchange transactions in the Bank for International Settlements’ April 2025 survey. Its role reflects decades of market depth, liquidity and widespread use in trade and finance.
India does not have to reproduce that system for rupee internationalisation to make economic sense. A more attainable objective is wider use in bilateral and regional trade, particularly where commercial links are strong and counterparties have reasons to earn, spend or invest rupees.
The DGFT amendment removes another piece of regulatory friction. That is worthwhile. The larger test begins after regulation has permitted the transaction: whether a foreign buyer, bank or supplier finds holding and using the rupee convenient enough to choose it. Currency internationalisation ultimately advances through repeated commercial use, one transaction at a time.