The Reserve Bank of India has now allowed non-resident exporters to and importers from India to hedge their exposure to the Indian rupee in their trade transactions with India, if those transactions are denominated in Indian rupees.
The new rules allow non-resident importers and exporters to either buy forwards or options to hedge their exposure to the Indian rupee. These derivatives can be purchased either directly from authorized banks in India or through banks located abroad (including through foreign branches of Indian banks).
The rules are geared to dissuade speculative hedging. For this reason, the concerned banks are required to obtain undertakings that the same exposure has not been hedged with any other banks in India and that the hedge will be cancelled as soon as the underlying exposure has been cancelled. Even so, it'll be interesting to see whether this facility achieves its stated objective of promoting greater use of the Indian rupee in international trade transactions.