India is considering a Russian proposal for rupee-denominated trade
“In order for the rupee-value mechanism to work, Russia is ready to increase its imports from India to meet its exports and to buy a wide range of goods, including food grains, pharmaceuticals, textiles, toilets and many other essentials. ”Says a source who tracks development Businessline.
Under the proposal, India would have to pay for imports from Russia, which is heavily equipped with plastics, chemicals, oil and machinery as well as weapons systems and other defense equipment. In return, Russia uses rupee payments to pay for goods imported from India.
If the proposed system works well, India could also use it to get more oil from Russia, which is being offered at a discount, but the source added that this is still a call to be taken at the highest level.
“A team from Russia’s Central Bank will visit India in May to rule out the details of the proposal,” the source said.
One obstacle to note is that bilateral trade is currently favorable to Russia. Of the total annual trade of about $ 11 billion, Russia’s exports to India are about $ 9 billion, while its imports are about $ 2 billion. Russia has a $ 7-billion deficit that it wants to bridge by increasing imports.
“Due to Western sanctions on Russia, the country is mostly importing from China. Therefore, it has a lot of scope to source goods from India,” the source explained.
But for the payment mechanism to work, the RBI has yet to launch it. That decision has not yet been made.
During a recent visit to India, Russian Foreign Minister Sergei Lavrov said that India and Russia would find a way to overcome the ‘artificial barriers’ created by the West in the payment system.
Speaking on the use of the rupee and ruble in bilateral trade, the minister said that Russia had recently started using more and more national currencies away from the use of the US dollar, adding that the trend would intensify.
Options are available
Conducting rupee-denominated trade will also solve the big problem of resolving the exchange rate between the rupee and the ruble, which is now very difficult due to subsequent volatility, the source said.
Following the Russian invasion of Ukraine on February 24, seven Russian banks were banned from using the SWIFT messaging system, which effectively shut down international trade.
In order for the system to work, Russian banks, which are exempt from Western sanctions, must open branches in India. Of the two Russian banks having branches in India, VTB Bank is under sanctions but Sberbank is not.
“Even though we can do business with Sberbank, India needs more than one channel. So non-grant banks like Gazprom Bank that trades in oil and gas can be allowed. That is another decision that needs to be made, “said Tariq al-Hashimi, the party’s secretary general.
The Indian banks involved in the transaction should also be identified. UCO Bank without dollar exposure is the obvious choice. But more banks may need to be added. “After a meeting between Russian and Indian officials next month, there will be more clarity on the matter,” the source said.
April 14, 2022