India in July signed an agreement with the UAE for rupee settlement and soon after Indian Oil Corporation (IOC) made payments for purchase of a million barrels of crude oil from Abu Dhabi National Oil Company (ADNOC) in Indian rupees.
India's first-ever payment in rupees for crude oil purchased from the UAE is helping the world's third largest energy consumer push for taking the local currency global, as it looks for similar deals with other suppliers, officials said, adding internationalisation is a process and there are no targets.
With the nation more than 85 per cent dependent on imports for meeting its oil needs, India has been pursuing a three-pronged strategy of buying from the cheapest available source, diversifying sources of supply and not breaching any international obligation like the price cap in case of Russian oil.
While the strategy helped save billions of dollars, when it ramped up imports of Russian oil that was shunned by some in West post Ukraine war, it is looking to settle trade in rupees instead of dollars in a bid to cut transaction costs by eliminating dollar conversions.
India in July signed an agreement with the UAE for rupee settlement and soon after Indian Oil Corporation (IOC) made payments for purchase of a million barrels of crude oil from Abu Dhabi National Oil Company (ADNOC) in Indian rupees.
Some of the Russian oil imports too have been settled in rupee.
Officials said the default payment currency for import of crude oil has been the US dollar for several decades and the currency traditionally has liquidity as well as lower hedging cost.
But to boost the rupee's role in cross-border payments, the Reserve Bank of India allowed more than a dozen banks to settle trades in rupees with 18 countries since last year.
Since then, India has been encouraging big oil exporters such as the UAE and Saudi Arabia to accept the Indian currency for trade settlements, officials said, adding the first success happened in August this year when IOC made the rupee payment to ADNOC.
More such deals may happen in future, they said, insisting there was no target as internationalisation is a process and cannot happen overnight.
"We have to be mindful that it (rupee settlement) does not lead to increase in cost and is in no way detrimental to the trade," an official said.
"Settling a trade in rupee where the amount is not big does not pose much problem but when you have each shipload of crude oil costing millions of dollars, there are issues." India, they said, is navigating the situation keeping overarching national interest in mind.
The internationalization of the rupee will help reduce dollar demand and make the Indian economy less vulnerable to global currency shocks.
A parliamentary standing committee report, tabled in Parliament last week, stated that there were not many takers for Indian rupee.
Officials said that situation was true for 2022-23 fiscal and there has been a rupee trade this year.
"During FY 2022-23, no crude oil imports by oil PSUs were settled in Indian rupee. Crude oil suppliers (including UAE's ADNOC) continue to express their concern on the repatriation of funds in the preferred currency and also highlighted high transactional costs associated with conversion of funds along with exchange fluctuation risks," the ministry told the panel.
The ministry, whose subimissions are part of the committee's report which was tabled in Parliament last week, said India Oil Corporation (IOC) has informed that it incurred high transaction costs as crude oil suppliers pass on the additional transactional costs to IOC."