India, ranked as the third-largest global energy consumer, recently executed its inaugural payment in rupees for the acquisition of crude oil from the United Arab Emirates (UAE). This development indicates a potential strategic initiative to boost the international prominence of the local currency. The decision aligns with India's overarching objectives of expanding its sources of oil, reducing transaction expenses, and establishing the rupee as a credible currency for trade settlements. It corresponds with a policy shift by the Reserve Bank of India on July 11, 2022, permitting importers to settle payments in rupees and enabling exporters to receive payments in the domestic currency.
Authorities emphasize that the process of internationalization is continuous, with no predefined targets at present. In July, India solidified an arrangement with the UAE for settlements in rupees, resulting in the Indian Oil Corporation (IOC) using Indian rupees to make payments for the acquisition of one million barrels of crude oil from Abu Dhabi National Oil Company (Adnoc). Furthermore, certain imports of Russian oil have also been resolved through payments in rupees.
With over 85 percent of its oil needs reliant on imports, India has adopted a multifaceted strategy, emphasizing sourcing from the most cost-effective suppliers, diversifying supply sources, and adhering to international obligations. The nation's approach proved advantageous during the ramp-up of Russian oil imports, saving billions of dollars. Despite these efforts, India aims to explore trade settlements in rupees rather than dollars to streamline transactions by eliminating currency conversions.
While there has been success in non-oil trade settlements with specific countries, oil exporters overall have hesitated to embrace the rupee, expressing concerns about fund repatriation and high transactional costs. The oil ministry, addressing a parliamentary standing committee, emphasized that payments for crude oil can be made in Indian rupees, contingent on suppliers adhering to regulatory guidelines. The ministry added that there has not been much international interest in making payments using the Indian rupee as suppliers are wary of the repatriation of funds and high transactional costs.
For the fiscal year 2022–23, spanning from April 2022 to March 2023, India incurred expenditures amounting to $157.5 billion for the importation of 232.7 million tonnes of crude oil. Primary contributors to this import included Iraq, Saudi Arabia, Russia, and the UAE, with West Asia accounting for 58 percent of the total supplies. Notably, the domestic supply meets just under 15 percent of the overall demand.