For the first time, India used its local currency, the rupee, to pay for crude oil imported from the United Arab Emirates (UAE). This could indicate a strategic initiative to elevate the global standing of the rupee.
The decision is part of a wider effort by India to diversify its oil suppliers, reduce transaction costs, and position the rupee as a credible currency for trade settlements. Notably, India is the third-largest energy consumer globally.
This action complements the Reserve Bank of India's 11 July 2022, directive permitting importers to make payments in rupees and exporters to receive payments in the same currency, Business Standard reported.
Authorities have emphasised that the process of internationalisation is continuous and at present, there are no precise goals set.
In July, a deal was finalised between India and the UAE for transactions in rupees. This led to the Indian Oil Corporation (IOC) settling payments for the purchase of one million barrels of crude oil from the Abu Dhabi National Oil Company (Adnoc) in Indian currency. Furthermore, certain oil imports from Russia have also been paid for in rupees.
India, with its oil requirements being dependent on imports for more than 85 per cent, has implemented a comprehensive strategy. This strategy emphasises procuring from the most economical suppliers, diversifying the sources of supply, and complying with international commitments.
This approach has proven beneficial, particularly during the increase in oil imports from Russia, leading to savings of billions of dollars. Even with these initiatives, India is looking to conduct trade settlements in rupees instead of dollars. This move is intended to simplify transactions by doing away with currency conversions.
Even though non-oil trade settlements with certain countries have been successful, the overall group of oil exporters has shown reluctance in adopting the rupee due to worries about repatriating funds and high transaction costs.
The oil ministry, while addressing a parliamentary standing committee, underscored that crude oil payments can be made in Indian rupees, provided that suppliers comply with regulatory guidelines.
However, they also noted that there has been a lack of international interest in using the Indian rupee for payments, as suppliers are apprehensive about the repatriation of funds and high transaction costs.
During the fiscal year 2022-23, which spans from April 2022 to March 2023, India's expenditure on crude oil imports reached $157.5 billion for 232.7 million tonnes.
The primary providers were Iraq, Saudi Arabia, Russia, and the UAE, with West Asia accounting for 58 per cent of the total supply. However, the domestic production could only satisfy less than 15 per cent of the overall demand.
Nishtha Anushree is Senior Sub-editor at Swarajya. She tweets at @nishthaanushree.
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