India's finance ministry is mulling whether to allow buyers of Iranian crude to open rupee-denominated letters of credit (L/Cs).

Iranian importers may also use L/Cs in the Indian currency to buy goods from India.

L/C usage

The finance ministry reckons rupee-denominated L/Cs would be used mainly for sales of Indian tea, machinery and engineering services to Iranian buyers.

Allowing buyers of Iranian crude with rupee-denominated L/Cs may also help India avoid obstacles created by US sanctions imposed on Iran to US dollar-denominated trades.

Payments in euros have also been stemmed by sanctions imposed by the US and Europe.

International currency

Analysts say the move is also a step towards making the rupee an international currency.

In this respect, India would be moving in the same direction as China which, over the last two years, has opened up to renminbi-denominated L/Cs and other international trade finance transactions.

This article represents the views of the author and not necessarily those of the ICC or any of the other partners in DC-PRO.