NEW DELHI – India and Russia have suspended efforts to settle bilateral trade in rupees after months of negotiations failed to convince Moscow to keep rupees in its coffers, two Indian government officials and a source with direct knowledge of the matter said.
This would be a major setback for Indian importers of cheap oil and coal from Russia who were awaiting a permanent rupee payment mechanism to help lower currency conversion costs.
With a high trade gap in favour of Russia, Moscow believes it will end up with an annual rupee surplus of more than US$40 billion (S$53 billion) if such a mechanism is worked out and feels rupee accumulation is “not desirable”, an Indian government official, who did not want to be named, told Reuters.
India’s Finance Ministry, the central Reserve Bank of India and the Russian authorities did not immediately respond to requests for comment.
The rupee is not fully convertible. India’s share of global exports of goods is also just about 2 per cent and these factors reduce the necessity for other countries to hold rupees.
India started exploring a rupee settlement mechanism with Russia soon after the invasion of Ukraine in February last year. But there has been no reported deal done in rupees.
Most trade is in United States dollars, but an increasing amount is being carried out in other currencies like the United Arab Emirates dirham.
The two sides have spoken about facilitating trade in local currencies, but the guidelines were not formalised.
Russia is not comfortable holding rupees and wants to be paid in Chinese renminbi or other currencies, a second Indian government official involved in the discussions said.
“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 has not helped,” a third source who is directly aware of the developments said.
Since Russia’s invasion of Ukraine on Feb 24, 2022, India’s imports from Russia have risen to US$51.3 billion until April 5, from US$10.6 billion in the same period in the previous year, according to another Indian government official.
Discounted oil has constituted a large part of India’s imports, surging twelve-fold in the period.
