India and Saudi Arabia are negotiating the “feasibility” of carrying out bilateral trade in national currencies, a statement from the Indian Commerce Ministry said.
Indian Commerce and Industry Minister Piyush Goyal concluded his two-day visit to Riyadh, where he co-chaired a ministerial meeting of the India-Saudi Arabia Strategic Partnership Council.
The meeting was headed by Saudi Arabian Energy Minister Abdulaziz bin Salman Al-Saud.
The Indian statement said the two ministers also discussed the introduction of Indian online payment systems such as UPI (Unified Payments Interface) in the Saudi market. They also discussed working out a way to introduce the New Delhi-backed Rupay card, an alternative to Mastercard and Visa, in the Saudi market.
Goyal said that both the governments would also seek to remove other “trade barriers” in their commercial ties as well as diversify their trading relationship, which is currently dominated by Riyadh’s energy exports.
The official Indian statement mentioning discussions trading in local currencies comes just days after India’s Directorate General of Foreign Trade amended its trade policy by allowing Indian importers and exporters to pay and receive money through ‘Special Vostro’ accounts set-up by foreign banks in Indian banks.
The Reserve Bank of India (RBI) last month had asked Indian businesses to make arrangements to carry out foreign trade in local rupees, as Prime Minister Narendra Modi’s government tries to plug a ballooning trade deficit which has been exacerbated by rising energy and food prices and a volatile dollar, which hit an all-time high vis-à-vis the Indian rupee in July.
The need to shun the US dollar has figured in policy discussions of the central bank and the government in recent months owing to western sanctions against Moscow, with trade in local currencies also seen as means to avert the sanctions that come with a dollar-denominated system.
The Samarkand Declaration released after the Shanghai Cooperation Organization (SCO) heads of states meeting in Samarkand, Uzbekistan, last week also called for developing a "roadmap" aimed at increasing the share of national currencies in mutual settlements of payments.
As per the RBI, New Delhi’s external debt stood at $620.7 billion at the end of financial year 2022, with the component of US dollar-denominated debt making up the largest share at 53.2 percent.
The RBI said at the time that volatility in US dollar caused the overall debt to increase by around $10 billion. But the financial impact on Indian debt due to a volatile US dollar in the current financial year could increase amid tightening of the monetary policy by US Federal Reserve which has impacted currencies globally.