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| RBI Directive- Promoting Rupee Payments in Oil Imports |
The Reserve Bank of India (RBI) has instructed major state-owned refiners to negotiate with Persian Gulf oil suppliers to accept at least 10% of oil payments in rupees in the upcoming financial year.
Aim: To enhance the Indian currency's presence in international trade and diminish dependency on the US dollar.
India’s Growing Energy Demand and Currency Concerns:
- India ranks third globally in crude imports and is projected to lead global oil consumption growth in the coming years.
- Concerns arise regarding the rupee's depreciation due to India's soaring energy demand.
- RBI aims to capitalize on India's consumption growth to bolster the use of the rupee in global trade.
State-Owned Refiners' Approach:
- Indian Oil Corp., Bharat Petroleum Corp., and Hindustan Petroleum Corp. have initiated talks with oil exporters concerning the rupee payment proposal.
- However, oil suppliers express reservations over currency risks and conversion charges.
Resistance and Challenges:
- Oil exporters hesitate due to currency risk and conversion charges.
- RBI suggests refiners bear some transaction charges, but refiners resist, fearing profit erosion.
Dominance of the US Dollar in Global Oil Transactions:
- Most global oil transactions are conducted in US dollars.
- China has made strides in using the yuan for oil imports, but the dollar remains supreme.
Previous Instances and Challenges:
- In August last year, Indian Oil made partial payment to Abu Dhabi National Oil Co. in rupees for a crude shipment.
- Challenges include currency risk, conversion charges, and refiners' resistance.
Potential Benefits:
- Reduced Dollar Dependency: Increased rupee usage in trade can reduce reliance on the US dollar, mitigating economic vulnerabilities.
- Currency Strengthening: Enhanced rupee usage may fortify the currency's position in global markets.
- Leveraging Energy Demand: India's growing energy demand can be leveraged to negotiate favorable trade terms, including rupee payments.