Rupee-rouble trade scheme on the table: Structure may be like earlier Iran deal

The Centre is in the process of working out a rupee-rouble arrangement with Russia to allow trade between the countries to continue, even after sanctions by the EU and the US have restricted the access of Russian banks to international payment systems.

“They are working on some rupee-rouble type arrangements, nothing has been finalised yet. But, it can work. With Russia, it’s fundamentally feasible. We buy a lot (from them), they buy a lot (from us),” said a senior government official.

The official added the exchange rate between the currencies could be based on the rate with a third currency.

Queries sent to the Finance Ministry on the issue by The Indian Express did not elicit a response.

The Centre has already given nod to new purchases of Russian crude oil by state-owned refiners. The White House has clarified that a move by India to buy crude oil from Russia would not violate sanctions.

India’s chief exports to Russia include pharmaceuticals, mobile phones and seafood. Bilateral merchandise trade stood at $10.75 billion in the first 10 months of this fiscal year, with India exporting goods worth about $2.8 billion and importing goods worth $7.9 billion.

India previously had a rupee-rouble trade arrangement with the erstwhile Soviet Union, primarily for purchases of military hardware between 1970 and 1992.

Russia is currently facing a slew of sanctions from the EU, the US and its allies, which have hit the rouble and Russian stock markets. The EU has barred seven Russian banks from the SWIFT messaging system that enables international financial transactions. The US has banned all energy imports from Russia and sought to restrict its access to high-tech components, both hardware and software, made with any parts or intellectual property from the US.

The payment mechanism is likely to work along the lines of an earlier non-dollar denominated trade mechanism with Iran, according to experts. India had entered into a rupee-rial arrangement with Iran when the US imposed a trade embargo on the country. Under this arrangement, Indian oil refiners deposited payments for crude oil imports from Iran, which were then used to settle payments for Indian exports to Iran that included agricultural products such as rice and tea.

However, as India wound down oil imports from Iran, amid mounting pressure from the US, such accounts were left with insufficient funds to pay Indian exporters leading to long delays in payments.

Biswajit Dhar, trade expert and professor at Jawaharlal Nehru University, said a similar situation was far less likely in the case of Russia, given India’s strategic ties with Moscow and the fact that it has already taken a strong stand at the UN by not voting on a resolution to condemn Russia for the invasion of Ukraine.

“The move to cut oil imports from Iran was done under political pressure to fall in line with US sanctions… I don’t see a similar thing happening”, Dhar said.

The key concern for Indian exporters, however, is that trade with Russia remain unimpeded. A Sakthivel, president of the Federation of Indian Export Organisations, said exporters had submitted a proposal calling for a rupee-rouble trade mechanism. Sakthivel said the Reserve Bank of India would likely come out with an exchange rate for the two currencies.

“An exporter needs to realise his value, so when we book an order we know what value we are going to get,” Sakthivel said.

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