India's first-ever payment in rupees for crude oil purchased from the UAE is assisting the world's third largest energy consumer in its push to take the local currency global, as it seeks similar deals with other suppliers, officials said, adding that internationalisation is a process with no deadlines.
With the country relying on imports for more than 85% of its oil needs, India has pursued a three-pronged strategy of buying from the cheapest available source, diversifying sources of supply, and not violating any international obligations, such as the price cap in the case of Russian oil.
While the strategy helped save billions of dollars, when it ramped up imports of Russian oil that was shunned by some in West post Ukraine war, it is looking to settle trade in rupees instead of dollars in a bid to cut transaction costs by eliminating dollar conversions.
India in July signed an agreement with the UAE for rupee settlement and soon after Indian Oil Corporation (IOC) made payments for purchase of a million barrels of crude oil from Abu Dhabi National Oil Company (ADNOC) in Indian rupees.
Some Russian oil imports have also been settled in rupees.
Officials stated that the US dollar has been the default payment currency for crude oil imports for several decades, and that the currency has historically had liquidity as well as lower hedging costs.
However, in order to strengthen the rupee's role in cross-border payments, the Reserve Bank of India has since last year allowed more than a dozen banks to settle trades in rupees with 18 countries.
