5 min readNov 17, 2025 07:53 AM IST
First published on: Nov 17, 2025 at 07:14 AM IST
Efforts towards greater internationalisation of the rupee have recently received a significant boost. The measures announced are designed to broaden the avenues for rupee invoicing and its use for settlement in foreign trade, allowing greater investment avenues and reducing dependency on hard currencies. The thrust is on enhancing the accessibility, usability and acceptability of the Indian currency and improving the market infrastructure to support this shift.
With significant changes in the geopolitical environment, local currencies and their usage for international commitments have gone up many times. The International Finance Corporation has committed over $30 billion in 67 local currencies through various products between 2015 and 2024. The ADB reports that local currency loans are expected to reach 50 per cent of its private sector lending in the coming years. In a similar vein, RBI has now allowed banks to lend in Indian rupees to a person residing outside India, whether a resident in Bhutan, Nepal or Sri Lanka, and including a bank in these jurisdictions, for cross-border trade transactions. This could be expanded further.
India must find ways to increase its engagement with its trade partners to ensure greater and deeper connections between trade and payment systems. In order to promote greater usage of INR for trade invoicing and settlement, the quantum of transactions with the partner country would need to be significant. In this respect, India-Russia trade offers an important policy lesson. Bilateral trade, which was only $1.5 billion in 2003, stood at $72 billion in 2024. However, in terms of value chains and trade dependence, it is so low that most of the export to India is invoiced in US dollars, and the preference for settlement is in roubles.
Invoicing in USD helps to protect against INR depreciation, and settlement in roubles gives the desired optimum gains. The need is to promote intra-industry trade with greater complementarities. The share of the primary sector in bilateral trade is close to 80 per cent, semi-processed goods occupied 9.9 per cent and parts and components occupied only 0.8 per cent. Final goods were only 4.5 per cent of the trade basket. At the current juncture, there is an urgent need for agencies like the Federation of Indian Export Organisations to engage more with the RBI and other agencies for creating awareness among exporters about trade settlement in rupees and currencies of trading partners. This needs to be a top priority.
The RBI has recently entered into Local Currency Settlement System (LCSS) arrangements with select trade partners, such as the UAE, Indonesia, Mauritius and the Maldives. This will help reduce dependence on hard currencies. India and the UAE have linked UPI with the UAE’s payment platform, enabling users in both countries to make fast, convenient, safe, and cost-effective cross-border funds transfers. Earlier, the RBI and the Monetary Authority of Singapore had inked a similar agreement. UPI’s reach has been extended to Europe as well. The next step would be the ability to connect direct messaging systems between partner countries. In the case of India and the UAE, it would mean linking India’s Structured Financial Messaging System (SFMS) with the UAE’s messaging system for safer and faster settlements. Then there will not be any need to depend on the SWIFT system.
Achieving the long-term goal of a Viksit Bharat requires addressing all measures necessary for reducing trade costs and barriers. The target of a $30 trillion economy by 2047 and the trade target of $1 trillion in merchandise exports by 2030 need an ambitious agenda on ensuring greater and deeper connections between the trade and payment architecture. With greater thrust being given to signing free trade agreements, inclusion of local currency settlements may be seen as a priority area. While the local currency settlement system has emerged as a sustainable option, multilateralising it during the forthcoming BRICS Presidency of India next year would be an important policy decision. ASEAN central bank governors and finance ministers are also exploring similar initiatives for local currency use.
India would have to explore greater compatibility across platforms that are coming up as alternatives to SWIFT. The System for Transfer of Financial Messages is the Russian equivalent of the SWIFT financial transfer system. The global arm of NPCI is actively forging partnerships with central banks and financial institutions worldwide. Beyond enabling UPI in other countries, collaboration should involve helping them build their own domestic real-time payment systems using the UPI framework.
India’s story of payments and settlements will get a boost only when trade with countries – where payment arrangements have been entered into – expands and gets diversified.
The author is Vice Chancellor, Nalanda University. The views expressed are personal
India would have to explore greater compatibility across platforms that are coming up as alternatives to SWIFT. (Illustration: Komal) 
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