RBI Directive- Promoting Rupee Payments in Oil Imports

Image of RBI Chennai: Illustrating the Implementation of the New Directive Promoting Rupee Payments in Oil Imports
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.

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