The oil ministry informed a parliamentary standing committee that suppliers have voiced concerns about the high transactional costs and difficulty in repatriating funds, which has prevented India from finding takers for its demand that rupees be used to pay for the import of crude oil. International trade custom dictates that the U.S. dollar is the default payment currency for all contracts involving the import of crude oil. The Reserve Bank of India, however, permitted importers to pay in rupees and exporters to be paid in rupees on July 11, 2022, in an effort to internationalize the Indian currency.
Even while there has been considerable progress in non-oil commerce with a few nations, oil exporters still avoid the rupee. “No crude oil imports by oil PSUs were settled in Indian rupees during FY 2022–2023. Suppliers of crude oil, such as ADNOC of the United Arab Emirates, have expressed apprehensions regarding the repatriation of cash in the preferred currency and the high processing costs linked to committees. The ministry stated Indian Oil Corporation (IOC) has informed it that it incurred high transaction costs as crude oil suppliers pass on the increased transactional charges to IOC.
The ministry’s submissions are included in the committee’s report, which was presented in Parliament last week. It stated that previous year, the RBI had approved the establishment of rupee Vostro accounts in the trading partner nation. The mechanism entails that Indian importers who plan to import goods or services from overseas sellers or suppliers must pay for their purchases in Indian rupees, which are then credited into a designated Vostro account held by the partner country’s correspondent bank.
“Payments for crude oil can be made in Indian rupee, subject to the suppliers’ complying with regulatory guidelines in this regard,” according to the ministry. “Currently, Reliance Industries Ltd and oil PSUs do not have an agreement with any crude oil supplier to make purchases in Indian currency for supply of crude oil.” India is the third-biggest energy consumer in the world. Less than 15% of the nation’s needs are met by its indigenous production; the remaining crude oil is imported and refined at refineries to produce fuels like petrol and diesel.
