Rupee Rails or Dollar Detour? India Seeks Settlement Autonomy
Prime Minister Narendra Modi at Red Fort on Friday! (Image Narendra Modi, X)
The move of the RBI is an incremental strengthening of India’s economic resilience and bargaining leverage, especially amid tariff skirmishes.
By P SESH KUMAR
NEW DELHI, August 15, 2025 —India’s Reserve Bank has quietly eased the way for foreign banks to open Special Rupee Vostro Accounts by removing the requirement for prior approval. While some headlines framed this as a geopolitical gambit against the dollar, the reality is more modest: it is a technical adjustment to a mechanism first introduced in 2022, aimed at lowering transaction costs and broadening options for Indian trade partners.
The move strengthens India’s ability to settle trade outside dollar channels at the margin, particularly useful amid escalating US tariffs and wider global de-risking trends. Yet, it does not herald the rupee’s rise as a rival reserve currency.
Its true significance lies in incremental resilience and bargaining leverage, not in dramatic rupture—a careful evolution of India’s financial architecture rather than a revolution in the global order.
In early August 2025, the Reserve Bank of India quietly loosened a bit of plumbing in the rupee-trade architecture: it told Indian “authorised dealer” banks they no longer need prior RBI approval to open Special Rupee Vostro Accounts (SRVAs) for foreign correspondent banks.
In plain English, that’s a procedural green light that lets banks set up the accounts faster, so counterparties can settle trade directly in rupees. The change landed via an RBI circular on August 5 and was picked up by mainstream business media; it wasn’t a political “India ditches the dollar” manifesto, nor a BRICS-only privilege. It’s an ease-of-doing-business tweak to a mechanism India first built in 2022.
If we strip out the hype, the background is straightforward. Since mid-2022, India has been trying to diversify away from exclusive dollar settlements—partly to keep trade flowing with sanctioned or dollar-poor partners, partly as a long game to internationalise the rupee.
SRVAs are the rails: a foreign bank holds rupees at an Indian bank and uses that balance to settle imports/exports.
By August 2025, the network had already spread to dozens of banks and countries; Reuters recently tallied 156 SRVAs across 26 Indian banks, approved for 123 foreign correspondent banks from 30 partner countries. The new circular doesn’t reinvent those rails—it removes a speed-bump.
Why the sudden attention? Timing. The tweak arrives as US–India trade tensions spike: President Trump has announced tariff hikes that can push duties on Indian goods as high as 50%. That gives any rupee-centric workaround a political edge, and it’s why sensational outlets framed the RBI step as “India granting full rupee access to BRICS.”
But read the fine print: the RBI’s own guidance describes SRVAs as a bank-to-bank arrangement, available to any trading partner, and still embedded in India’s FEMA framework—hardly a geopolitical rupture. It’s not a renunciation of the dollar; it’s another valve in the system.
The immediate economic effect inside India is modest but real. Removing prior approval lowers setup friction, so more counterpart banks can join, and existing ones can scale. That can reduce forex conversion costs for Indian exporters and importers dealing with willing partners, smooth settlement with countries short on dollars, and, at the margin, support rupee demand abroad.
The RBI has also clarified how SRVA balances can be used or invested (including in government securities), which makes the rails a bit more attractive to foreigners who’d otherwise worry about idle rupee piles.
But none of this changes the two structural constraints that keep the rupee from becoming a daily driver of world trade: capital-account controls and limited offshore liquidity. Faster account opening is helpful; it isn’t a magic wand.
There are risks and trade-offs. Compliance is the big one. The RBI’s FAQs emphasise KYC/AML guardrails, and banks will still be on the hook for reporting and due diligence. Expect Indian banks to proceed selectively, expanding SRVAs where counterparty banks are reputable and where trade volumes justify the operational workload.
On the sovereign side, if counterparties accumulate rupees faster than they can spend them on Indian goods or approved investments, balances can swell uncomfortably; the RBI’s permission to invest in T-Bills and G-secs is meant to keep that money “parkable,” but it also ties rupee diplomacy to India’s domestic bond market.
Geopolitically, the move is a nudge, not a shove. It signals to BRICS and the wider Global South that India is willing to operationalise non-dollar settlement where it makes commercial sense. That dovetails with a broader de-risking trend in emerging markets, but it stops short of any exclusive club: there’s no “BRICS-only switch,” and there’s nothing here that prevents US-aligned partners from using SRVAs if they want to.
The breathless claim that India “granted full rupee access to BRICS” is an exaggeration of a technical step that applies to any counterparty that meets India’s regulatory standards.
Now, the US angle. Will Washington see this as defiance? Probably not on its own—banks have used local-currency settlement arrangements worldwide for years—but context matters. Arriving amid tariff escalations and US criticism of India’s Russian oil imports, the optics are prickly: easing rupee rails can help India and some partners route trade outside dollar channels at the margin.
Still, the US–India economic relationship is broad and sticky—tech supply chains, defence co-production, investment flows. Even with higher tariffs, both sides have left rhetorical space to keep talking; if anything, the rupee-trade push gives India a little leverage and resilience as it bargains for tariff relief or carve-outs over the next quarter.
What should we watch to gauge real-world impact? Three things. First, SRVA volumes, not just counts—do more counterparties actually invoice and settle in INR for big-ticket goods, or is usage confined to niche trades? Second, whether the “no prior approval” door yields a fresh wave of SRVA openings in countries that matter for India’s import bill (energy, critical minerals).
Third, whether US–India negotiations temper tariffs and thus sap the political urgency behind de-dollarising particular lanes. Signals are mixed today: alongside hawkish tariff talk, there are also noises about a possible deal timeline.
Bottom line: India hasn’t “ditched the USD.” The RBI has shaved some bureaucracy off a three-year-old mechanism to settle trade in rupees. That’s sensible house-keeping that can cut costs, diversify risk, and score a few geopolitical points—especially in a season of tariff brinkmanship—but it does not vault the rupee into reserve-currency territory.
The strategic play is cumulative: build reliable plumbing, widen counterpart uptake, deepen rupee markets, and keep compliance tight. If the US and India de-escalate on tariffs, SRVAs will still matter as optional lanes. If tensions persist, those lanes become more valuable. Either way, the change is evolution, not revolution.
The conclusion is that the RBI’s latest step is less a dramatic geopolitical rupture and more a quiet technical evolution. By removing prior approval for opening SRVAs, India has simply made it easier for banks to operationalise rupee-based trade settlements. The change lowers friction for exporters and importers, gives foreign partners more room to hold and invest rupee balances, and sends a signal of India’s intent to gradually internationalise its currency.
But it does not dethrone the dollar, nor does it instantly insulate India from US tariffs or geopolitical pressures. Its impact will depend on how widely counterparties actually use rupees in high-volume trade, whether SRVA balances remain manageable, and how US–India economic tensions play out in the coming months. In essence, this is evolution, not revolution—an incremental strengthening of India’s economic resilience and bargaining leverage, especially amid tariff skirmishes, but not yet a transformative shift in global financial order.
(This is an opinion piece, and views expressed are those of the author only)
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