The Reserve Bank of India (RBI) has urged major state-owned refiners in the country to encourage Persian Gulf suppliers to accept at least 10% of oil payments in rupees in the upcoming financial year, according to three executives familiar with the matter cited by Business Standard.
The executives, requesting anonymity due to the sensitivity of the issue, mentioned that this initiative aims to boost the Indian currency's presence in global trade and reduce reliance on the US dollar.
Concerns within the government about the potential impact of India's surging energy demand on the rupee and the desire to capitalize on consumption growth are driving this move, they added.
The three refiners—Indian Oil Corp., Bharat Petroleum Corp., and Hindustan Petroleum Corp.—have initiated discussions with oil exporters on this proposal. However, the suppliers are resisting due to concerns about currency risk and conversion charges, as outlined by the executives.
The central bank has instructed Indian refiners to share a portion of the currency transaction charges, but they are hesitant, citing potential erosion of profit margins.
India, the third-largest global crude importer, is projected to be a primary driver of global consumption growth in the coming decade. While the majority of global oil transactions are conducted in dollars, India aims to diversify by promoting the use of rupees.
The executives noted that Indian Oil Corp. had partially paid Abu Dhabi National Oil Co. for a shipment of 1 million barrels of crude in rupees last August. However, since then, there have been no further transactions in the currency.
Indian refiners have also utilized other currencies, including UAE dirhams, to settle payments for Russian crude.
India's ambitious move reflects a broader trend, echoing China's success in using the yuan for certain imports. Nevertheless, challenges such as resistance from suppliers and concerns about transaction charges pose hurdles to the Reserve Bank of India's initiative.