Daily Management Review

India And Russia Have Suspended Talks To Settle Trade In Rupees


After months of negotiations failed to persuade Moscow to keep rupees in its coffers, India and Russia have discontinued efforts to settle bilateral commerce in rupees, according to two Indian government officials and a person with direct knowledge of the situation.
This would be a huge disappointment for Indian buyers of inexpensive Russian oil and coal who had been hoping for a permanent rupee payment method to assist reduce currency conversion costs.
With a large trade deficit in Russia's favour, Moscow estimates it will end up with an annual rupee surplus of more than $40 billion if such a mechanism is implemented, and considers rupee accumulation is 'not desirable,' according to an unnamed Indian government official.
There were no comments available from the Indian finance ministry, the Reserve Bank of India, and Russian authorities.
The rupee is not a completely convertible currency. India's proportion of global goods exports is also around 2%, and these reasons lessen the need for other countries to hold rupees.
India began studying a rupee settlement mechanism with Russia soon after the invasion of Ukraine in February last year, but no rupee deal has been revealed. The majority of trade is conducted in dollars, but a rising percentage is conducted in other currencies, such as the UAE dirham.
The two parties have discussed promoting trading in local currencies, but no norms have been codified.
According to a second Indian government official participating in the discussions, Russia is not comfortable retaining rupees and prefers to be paid in Chinese yuan or other currencies.
"We don't want to push rupee settlement any more, that mechanism is just not working. India has tried everything we could to try and make this work but it hasn't helped," a third source who is directly aware of the developments said.
According to another Indian government official, since Russia's invasion of Ukraine on February 24, last year, India's imports from Russia have increased to $51.3 billion through April 5, up from $10.6 billion in the same period the previous year.
Discounted oil has accounted for a sizable portion of India's imports, which have increased twelvefold during the period. According to the official, India's exports in the same time dipped slightly to $3.43 billion from $3.61 billion the previous year.
Another official stated that both countries have begun searching for alternatives when the rupee settlement mechanism failed, but provided no other specifics.
According to the sources, trading with Russia has continued despite sanctions and payment concerns.
"Right now we are making some payments in dirham and a few other currencies but the majority is still in dollars. Settlement is happening in different ways, third party countries are also being used," one of the government officials said.
According to the officials, Indian traders are currently paying some trade payments outside of Russia.
"Third-parties are being used to settle trade with Russia. There is no ban on transacting with other countries over SWIFT. So payments are being made to a third country which route it or offset it for their trade with Russia," the other official said.
When asked if money was also being sent through China, the official replied, "Yes, including China."