High Transactional Costs and Repatriation Concerns
The Indian Oil Ministry has admitted that its efforts to pay for oil with rupees have not been successful. The ministry cites the high cost of converting the rupee to other major currencies as a primary reason for the policy’s failure. Oil suppliers, including ADNOC from the UAE, have also expressed concerns about repatriating their funds in the preferred currency. Some oil producers believe that the weakness of the rupee against the U.S. dollar makes it an unfavorable payment method.
According to a report in the Economic Times, the Indian Oil Company (IOC) has even paid a premium above the prevailing price, illustrating the failure of India’s de-dollarization efforts. Reliance Industries Ltd and oil public sector undertakings (PSUs) still have no agreement to pay in rupees with any supplier.
Permitted Use of Rupees in Oil Transactions
Since July 11, 2022, the Reserve Bank of India (RBI) has allowed oil importers to pay with rupees and exporters to be paid in rupees. This decision aims to reduce India’s reliance on the U.S. dollar for cross-border obligations. In contrast, India’s regional rival China has already established agreements with oil-producing countries to pay in yuan.
Partial Success in Non-Oil Trade Transactions
Although India has not achieved its goal of paying for oil with rupees, its de-dollarization policy has shown some success in non-oil trade transactions.
Hot Take: India’s Struggle to Shift from the U.S. Dollar
India’s attempts to pay for oil with rupees have faced significant challenges, with suppliers concerned about the high transactional costs and the ability to repatriate funds. While the country’s de-dollarization policy has achieved some success in non-oil trade, it has not been able to effectively diminish India’s reliance on the U.S. dollar in the crucial oil sector. This highlights the difficulties and complexities involved in shifting away from a dominant global currency.
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