The Reserve Bank of India (RBI) recently introduced new measures to internationalise the Indian Rupee, which are expected to strengthen India–Nepal economic and trade relations by easing credit and promoting INR-based transactions.
Strengthening Rupee Linkages
- On October 1, 2025, the RBI Governor announced three key steps to promote cross-border rupee transactions with Nepal, Bhutan, and Sri Lanka.
- These reforms aim to expand the role of the Indian Rupee (INR) in regional trade, investment, and lending, which could reshape the India–Nepal economic partnership.
Key RBI Measures
- INR Lending to Non-Residents: Indian authorised dealer (AD) banks can now lend in rupees to non-residents from Nepal for trade and business activities.
- Special Rupee Vostro Accounts: RBI now allows foreign banks to use these accounts for investing in corporate bonds and commercial papers in India, expanding beyond government securities.
- Transparent Currency Reference Rate: RBI will establish a benchmark rate for major trading currencies to enable INR-based international transactions with greater transparency.
Economic Context in Nepal
- Nepal’s economy, still recovering from the COVID-19 slowdown, suffers from weak industrial growth and tight domestic lending.
- Local banks’ cautious lending policies, dominated by major industrial groups, have limited access to credit for smaller businesses.
- These factors have slowed supply chains, reduced domestic demand, and contributed to unemployment and political instability.
Impact on India–Nepal Trade
- India is Nepal’s largest trading and investment partner, accounting for around two-thirds of Nepal’s total trade.
- Nepal’s exports to India include edible oil, jute, tea, and coffee, while India exports goods worth billions annually.
- RBI’s lending reform will help remove credit bottlenecks, boost joint ventures, and enable value-added exports from Nepal to global markets.
Strategic and Financial Implications
- Promoting the INR as a trade currency will reduce Nepal’s dependence on the U.S. dollar, insulating its economy from exchange rate volatility.
- The reform could ease foreign currency shortages, lower Nepal’s current account deficit, and strengthen overall macroeconomic stability.
- Both countries should coordinate closely — the Nepal Rastra Bank (NRB) must align its regulations with RBI guidelines to ensure smooth implementation.
Conclusion
RBI’s new rupee-linked reforms open fresh avenues for India–Nepal trade and investment.
If implemented wisely, they can lay the foundation for a more balanced and resilient economic partnership between the two neighbours.
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