India-Mauritius bilateral trade cooperation with local currencies
The Reserve Bank of India (RBI) and Bank of Mauritius (BOM) have signed a groundbreaking Memorandum of Understanding that enables bilateral trade settlements in Indian Rupee (INR) and Mauritian Rupee (MUR), marking a significant milestone in regional economic integration. This comprehensive framework, established during Prime Minister Modi’s state visit to Mauritius in March 2025, represents a strategic shift toward greater financial sovereignty and reduced dependence on traditional reserve currencies like the US Dollar.
Historic Agreement Framework
The landmark agreement was signed on March 12, 2025, in Port Louis by RBI Governor Sanjay Malhotra and BOM Governor Dr. Rama Krishna Sithanen, witnessed by Prime Ministers Narendra Modi and Navinchandra Ramgoolam. This Local Currency Settlement (LCS) System covers all current account transactions and permissible capital account transactions, enabling exporters and importers to invoice and settle payments in their respective domestic currencies.
The framework establishes an INR Clearing Centre in Mauritius and includes INR as a settlement currency in the Mauritius Automated Clearing and Settlement System. Commercial banks can now maintain INR accounts at the Bank of Mauritius, facilitating seamless rupee transactions.
Comprehensive Economic Benefits
Trade Volume and Current Dynamics
India-Mauritius bilateral trade reached significant volumes in recent years, with India’s exports to Mauritius at $774 million and Mauritian exports to India at $46 million in 2024. The total trade volume of approximately $820 million provides substantial opportunities for cost savings through local currency settlements.
India’s primary exports include pharmaceuticals (10% market share), motor vehicles (10%), mineral fuels (16%), cotton (9%), and cereals (6%). Mauritius exports mainly iron and steel (47%), medical instruments (32%), and aluminum products (10%).
Cost Optimization and Efficiency Gains
The local currency settlement system delivers significant cost reductions by eliminating multiple currency conversions, typically saving businesses 2-4% on transaction costs. Settlement times are drastically reduced from 3-5 business days to potentially same-day settlements, improving cash flow management particularly for small and medium enterprises.
The system also reduces foreign exchange risk by allowing businesses to trade in familiar currencies with more predictable exchange rate movements between INR and MUR compared to USD volatility.
Strategic Regional Integration
COMESA Expansion Opportunity
A crucial aspect of this agreement involves extending the INR Clearing Centre to the Common Market for Eastern and Southern Africa (COMESA) Regional Payment and Settlement System. Since Mauritius serves as the settlement bank for COMESA’s 21 member countries, this positions India to expand rupee usage across African markets with a combined GDP exceeding $700 billion.
The COMESA Regional Payment and Settlement System (REPSS) already processes over $138 million in transactions through nine participating Central Banks, with potential for significant growth as more countries join the network.
CECPA Synergy
The local currency settlement complements the Comprehensive Economic Cooperation and Partnership Agreement (CECPA), India’s first trade agreement with an African nation. Under CECPA, Mauritius offers preferential access to India on 310 products, while receiving preferential treatment for 615 products in the Indian market.
Implementation Framework and Risk Management
Operational Mechanism
The system operates through sophisticated networks connecting central banks and commercial banks in both countries. When transactions occur, the INR-MUR exchange eliminates US Dollar intermediation while maintaining transparency and security standards required for international transfers.
Addressing Implementation Challenges
Key challenges include market acceptance by businesses accustomed to USD transactions and liquidity management for entities receiving payments in foreign currencies. However, both governments are conducting extensive outreach programs to educate businesses about benefits and procedures.
The phased implementation approach allows businesses to test the mechanism with smaller transactions before full-scale adoption, while traditional USD settlement remains available during the transition period.
Rupee Internationalization Strategy
This agreement advances India’s broader rupee internationalization initiative, building on Special Rupee Vostro Accounts (SRVAs) established with 22 countries. Recent RBI modifications allow SRVA holders to invest surplus rupees in Indian government securities and Treasury Bills, making rupee holdings more attractive for foreign entities.
The Mauritius model serves as a template for expanding local currency settlements to other African nations, leveraging Mauritius’s position as a financial hub and gateway to African markets.
Digital Infrastructure Integration
The agreement leverages existing digital foundations, including the successful implementation of India’s Unified Payments Interface (UPI) and RuPay cards in Mauritius in 2024. This digital infrastructure provides businesses with modern payment mechanisms that complement traditional banking channels.
Future enhancements include integration with India’s PM Gati Shakti digital platform and enhanced cybersecurity cooperation, further streamlining business processes.
Future Prospects and Market Development
Business Opportunities
The framework creates opportunities for Indian banks to expand rupee banking services in Mauritius while enabling Mauritian financial institutions to develop specialized trade finance solutions. Simplified currency mechanisms may encourage increased Indian investment in Mauritian infrastructure, tourism, and manufacturing sectors.
Regional Economic Impact
The success of this initiative could inspire similar arrangements throughout the Indian Ocean region, with countries like Seychelles, Madagascar, and Maldives as potential candidates for expanding the local currency settlement network. This aligns with global trends toward financial sovereignty while contributing to a more balanced, multipolar financial system.
Conclusion
The India-Mauritius local currency settlement agreement represents a watershed moment in bilateral economic relations and regional financial integration. By enabling trade in INR and MUR, both nations have taken significant steps toward economic sovereignty and reduced dependence on traditional reserve currencies.
With robust implementation frameworks, comprehensive business support, and expansion potential through COMESA integration, this agreement establishes a precedent for similar arrangements across the developing world. The initiative demonstrates how historical ties, complemented by modern financial innovation, can create practical solutions for contemporary economic challenges while strengthening the foundation for sustained growth in the Indian Ocean region.
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