India now settles bilateral trade in Indian rupees with 22 countries, up from just 6 countries when the RBI launched its rupee trade settlement framework in July 2022. The expansion reflects India's growing clout in global trade and its strategic push to reduce dependence on the US dollar in international transactions, which currently accounts for about 88% of India's total trade invoicing.
Countries that have active rupee trade settlement arrangements with India include Russia, Sri Lanka, Bangladesh, Malaysia, Singapore, UAE, the UK and several African nations. The framework has been particularly useful for India-Russia trade, which has surged since 2022, and for trade with smaller neighbouring economies that face dollar liquidity constraints in their banking systems.
However, the framework faces structural challenges. Most countries prefer to hold reserves in globally liquid currencies like the dollar, euro or yen rather than rupees, which limits their enthusiasm for accumulating rupee balances. To address this, India has been working to create investment avenues for countries holding surplus rupees, including allowing investment in Indian government securities and equity markets. Full rupee convertibility remains a longer-term aspiration requiring sustained macroeconomic stability.
