India and Indonesia are expected to soon seal a deal for settling bilateral trade in domestic currency, shunning the US dollar.
Apart from settling trade in local currency, there could also be a deal between the two countries on real-time card recognition and digital payments, a step that could help promote the use of UPI and similar tools.
The issues were discussed between India’s Finance Minister Nirmala Sitharaman and her Indonesian counterpart Sri Mulyani Indrawatias. Both the countries announced the launch of ‘Economic and Financial Dialogue’, focused on intensifying trade and investment relationship.
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Indonesia, which is among the largest economies in Asia, and is said to be the largest trading partner of India in the ASEAN region.
“The areas of cooperation include bilateral investment, financial services and infrastructure development, among others. For instance, India has developed expertise in digital public infrastructure. It can provide time-tested solutions for convenient and affordable digital payments, which can assist Indonesia in achieving its financial inclusion goals,” Sitharaman said after her meeting with the Indonesian FM.
India and Indonesia trade was of around $39 billion last year, it was India’s sixth largest trading partner and enjoyed a trade surplus of $19 billion, especially due to large shipments of palm oil and petroleum. Refined petroleum products were India’s largest export item.
How settling trade in local currency help India & Indonesia?
Making trade settlement in domestic currency will help both India and Indonesia cut the transaction cost.
India has been making efforts to promote the use of Indian rupee in international trade. In July 2022, India’s central bank – Reserve Bank of India (RBI) – allowed invoicing, payment and settlement of exports and imports in INR through special rupee vostro accounts.
How will trading in domestic currency help?
Settling overseas trade in domestic currency will help in protecting the Indian rupee from volatility and reduce cost of doing business in the global market, Indian’ Economic Survey had said in January this year.
Also, international settlement in INR acquires significance against the backdrop of the US Federal Reserve aggressive increase in the policy rates and its hawkish stand.
With inputs from agencies