India’s attempt to use the rupee for crude oil imports has not been given the desired outcomes, said the Oil ministry. The suppliers have expressed concerns about repatriating funds and high transactional costs.
As per international trade practice, the default payment currency for all contracts for importing crude oil is the USD. However, to globalise the Indian currency, the Reserve Bank of India (RBI) has allowed importers to pay with rupees and exporters to be paid in rupees since 11 July 2022.
Despite some progress in non-oil trade with a few countries, oil exporters are still hesitant to accept Indian rupee as payment. The oil ministry has informed the parliamentary department-related standing committee that none of the crude oil imports made by oil PSUs in Financial Year 2022-23 (FY23) were settled in Indian rupee.
Crude oil suppliers, including UAE’s ADNOC, have expressed concerns about the repatriation of funds in the preferred currency and have pointed out the high transactional costs associated with converting funds and the risks of exchange fluctuations.
The ministry submitted a report to Parliament last week which highlighted that the Indian Oil Corporation (IOC) faced high transaction costs due to crude oil suppliers passing on the additional costs to IOC.
According to the report, the Reserve Bank of India (RBI) had allowed the opening of rupee vostro accounts in the partner trading country last year.
This mechanism allows Indian importers to make payments in Indian rupees, which are then credited to the special Vostro account of the correspondent bank of the partner country, against invoices for the supply of goods or services from the overseas seller/supplier.
According to the ministry, payment for crude oil can be made in Indian rupee, but only if the suppliers comply with the regulatory guidelines.
Currently, Reliance Industries and oil PSUs have no agreement with any crude oil supplier to make purchases in Indian currency.
India is the third largest energy consumer in the world, with domestic production meeting less than 15 per cent of its needs. The rest of the crude oil is imported, which is then converted to fuels such as petrol and diesel at refineries.
In FY23, India spent USD 157.5 billion on import of 232.7 million tonnes of crude oil. Iraq, UAE, Saudi Arabia, and Russia were its biggest suppliers.
Of this, 141.2 million tonnes were imported from the Middle East, accounting for 58 per cent of all supplies.
