Impact of West Asia War and Rupee's Value

The ongoing war in West Asia has intensified the challenges faced by India's economy, particularly concerning the value of the rupee. The rupee's value dropped significantly in March after an initial closing of around 91 per dollar in February. However, interventions by the Reserve Bank of India (RBI) helped stabilize the situation. New data from the RBI suggests that a strategic decision taken in mid-2022 has started yielding positive results.

Indian Trade Settlements in Rupees

• In February, Indian traders settled imports worth over Rs 14,000 crore in rupees, a rise from around Rs 11,000 crore in January.
• This move saved India approximately $1.5 billion in foreign exchange in February alone.
• For the first 11 months of the fiscal year 2025-26, imports worth Rs 1.39 lakh crore ($15 billion) were settled in rupees, marking a 45% increase from the previous year.
• Despite the progress, the portion of imports settled in rupees remains small, accounting for only 2.35% of total imports in 2025-26, compared to 1.85% in 2023-24.

Rupee Settlement Framework

In October 2022, the RBI introduced a framework for international trade settlements in rupees, initially targeting regional partners. This strategy aimed to reduce India's current account deficit and decrease the need for large foreign exchange reserves.

Global Currency Agreements

• Banks from 30 countries, including Germany, Israel, and Russia, are now permitted to open accounts with Indian banks to facilitate rupee trade settlements.
• The RBI signed agreements with the UAE, Indonesia, and Maldives to promote local currencies for cross-border transactions.
• India has longstanding rupee arrangements with Bhutan and Nepal, while Sri Lanka added the rupee to its list of designated foreign currencies in August 2022.

Trade Deficit and Rupee Stabilization

India's trade deficit in 2025-26 stood at $119 billion. By settling imports in rupees, India can potentially reduce foreign currency outflows and stabilize the exchange rate more effectively than recent forex market measures.

Global De-Dollarisation and India's Position

The global trend towards de-dollarisation, led by countries like China, seeks to reduce dependence on the US dollar. China's renminbi has increased its share in global payments and forex turnover. However, India focuses on mitigating exchange rate risks rather than trying to elevate the rupee to a global reserve currency status.