Miguel Lopez India’s efforts to transition from dollar-denominated oil trade have faced significant setbacks. The Indian Oil Ministry has recently confirmed the failure of the initiative to conduct oil transactions in rupees. This difficulty stems largely from the reluctance of oil suppliers to accept the Indian currency, amid concerns over the ability to repatriate earnings and the high costs involved in currency conversion.
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High Costs in Currency Conversion
The attempt to encourage oil producers to accept the rupee has not been successful, as reported by the Indian Oil Ministry to a parliamentary committee. A primary obstacle is the perceived expense in converting the rupee into other major currencies.
Oil suppliers, such as the United Arab Emirates’ ADNOC, have expressed apprehension about the challenges in repatriating revenue. A notable factor is the rupee’s relative instability against the U.S. dollar, which diminishes its attractiveness as a payment option.
The ministry disclosed, “During FY 2022-23, no crude oil imports by oil PSUs were settled in the Indian rupee. Suppliers, including UAE’s ADNOC, continue to be concerned about repatriating funds in their preferred currency and the high transactional costs and exchange fluctuation risks.”
Moreover, the Indian Oil Company (IOC) incurred additional costs above the market rate, underscoring the extent of the challenges in India’s de-dollarization efforts. Also, Reliance Industries Ltd and oil PSUs have not reached any agreements to conduct transactions in rupees with suppliers.
RBI’s Efforts and Comparative International Context
Since July 11, 2022, the Reserve Bank of India (RBI) has allowed oil importers to make payments in rupees, and exporters to receive payments in the same, aiming to reduce dependence on the U.S. dollar for international settlements. In contrast, China has successfully negotiated agreements to use its currency, the yuan, for oil purchases with some oil-producing nations.
Despite the setbacks in the oil sector, India has seen some success in implementing its de-dollarization policy in other non-oil international trade transactions.
We invite your thoughts and opinions on this development. Please share your views in the comments section below.
Frequently Asked Questions (FAQs) about De-dollarization India
What is the issue with India’s attempt to de-dollarize its oil trade?
India’s effort to use the rupee instead of the U.S. dollar for oil transactions has faced challenges. Oil suppliers, like UAE’s ADNOC, have concerns over the feasibility of repatriating funds and the high costs of converting rupees into other currencies.
Why are oil suppliers hesitant to accept rupees for oil payments?
Suppliers are wary of the rupee due to its perceived instability against the dollar and the high transactional costs and risks associated with converting it into other major currencies.
Has India succeeded in any agreements to pay for oil in rupees?
As of FY 2022-23, no crude oil imports by Indian oil PSUs were settled in rupees. Suppliers continue to prefer payment in their chosen currency due to concerns over fund repatriation and currency conversion costs.
What steps has the Reserve Bank of India taken to facilitate this de-dollarization?
Since July 11, 2022, the Reserve Bank of India has allowed oil importers to pay in rupees and exporters to be paid in the same currency, aiming to reduce India’s reliance on the U.S. dollar.
How does India’s de-dollarization effort compare with China’s approach?
While India faces setbacks in its de-dollarization efforts in oil trade, China has established agreements to use its currency, the yuan, for oil purchases with some oil-producing countries.
More about De-dollarization India
- Indian Oil Ministry’s Rupee Conversion Challenges
- De-Dollarization in India’s Oil Trade
- India’s Struggle with Oil Trade De-Dollarization
- Reserve Bank of India’s De-Dollarization Policy
- Comparative Analysis of China and India’s Currency Usage in Oil Trade
5 comments
why can’t we stick to the dollar? It’s a global currency for a reason. This seems like a lot of effort for not much gain.
India’s de-dollarization efforts are commendable, but it seems like a tough road ahead. The reliance on the dollar is a global issue, not just for India.
Its interesting to see how India is struggling with de-dollarization, especially with rupee not being a strong as the dollar. China seems to be doing better with the yuan.
Did anyone consider the impact on the common people? These policies sound good on paper but the execution is key.
I’m not surprised, converting currency is always a hassle. plus, the rupee isn’t as stable, right? Oil suppliers will obviously have concerns.