India, Egypt hold talks on trade settlement in national currencies
India and Egypt, both members of Brics, are engaged in negotiations for an agreement on trade settlement in national currencies at a time when the issue has become a matter of focus for the grouping, people familiar with the matter said.
The development also comes at a time when the two countries have set a target for almost doubling bilateral trade to $12 billion by 2028. Several rounds of talks have been held by the two sides on the agreement, which both sides are keen to finalise as soon as possible, the people cited above said on condition of anonymity.
“There is no time frame for reaching an understanding but the two sides would like to have it in place as quickly as possible. It will help ease bilateral trade, which has been growing in recent years,” one of the people cited above said.
A second person aware of development said India allows trade in national currencies under the new Foreign Trade Policy (FTP) of 2023.
“Arrangements for special rupee vostro accounts (SRVAs) have been made with about two dozen countries to facilitate trade in local currencies and talks are on with several other trade partners, including Egypt,” the second person said.
The Reserve Bank of India (RBI) has put in place an alternative arrangement for invoicing, payments and settlement of exports and imports in Indian rupees since July 2022. Based on bilateral arrangement, banks of several countries have opened SRVAs in India.
A vostro account is held by a bank on behalf of a bank in another country.
Countries that have SRVAs in India include Russia, Belarus, Bangladesh, Fiji, Germany, Israel, Kazakhstan, Kenya, Malaysia, the Maldives, Myanmar, New Zealand, Oman, Singapore, Sri Lanka, Uganda, the United Arab Emirates (UAE) and the UK.
Before the start of the Israel-Hamas conflict, India-Egypt trade was worth around $6-7 billion a year. Egypt approved India for wheat imports in 2022, though only 61,000 tonne were shipped before New Delhi banned grain exports. During Egyptian President Abdel Fattah El-Sisi’s visit to India in 2023 to participate in the Republic Day celebrations, the two sides discussed the strengthening of food and pharmaceutical supply chains and bolstering cooperation in key areas such as ICT and pharmaceuticals.
However, imports from Egypt have been severely affected by the conflict in West Asia, and there was a 28% year-on-year decline in imports of Egyptian goods to $461 million in the first five months (April-August) of the current fiscal. India’s exports to Egypt during the same period witnessed a 5% growth to $1.44 billion.
India-Egypt merchandise trade peaked at $7.26 billion in 2021-22, which included Indian exports worth $3.74 billion and imports worth $3.52 billion. In 2022, India’s exports got a boost because Egypt lifted non-tariff barriers (NTBs) against Indian wheat after supplies from Ukraine were disrupted.
India’s exports to Egypt during 2022-23 peaked at $4.11 billion, while imports from the country fell to $1.95 billion, taking bilateral trade to $6.06 billion. In 2023-24, bilateral trade fell to $4.67 billion as the Israel-Hamas conflict disrupted the transportation of goods. India exported goods worth $3.52 billion in FY24 and received supplies worth $1.15 billion.
India’s major exports to Egypt include refined petroleum products, buffalo meat, iron and steel, agricultural products and pharmaceuticals. It mainly imports crude oil, fertilisers and cotton from Egypt.
The finalisation of arrangements for trade settlement in national currencies was one of the key issues discussed at the recent Brics Summit in Kazan, Russia. Dammu Ravi, secretary (economic relations) in the external affairs ministry, told a media briefing after the summit that many leaders expressed interest in settlement of trade in national currencies and payment mechanisms because of the global economic situation and the debt crisis that many countries are facing.
“This is a very specific area where the ministry of finance, in particular the department of economic affairs, is leading. They need to have a more expert-level interaction effort to concretise this activity among the Brics countries,” he said.
The matter also figured in the Kazan Declaration issued after the summit, which said the leaders of Brics states had tasked their finance ministers and central bank governors to continue considering the use of national currencies and payment instruments and platforms.
