© Reuters. FILE PHOTO: FILE PHOTO: A cashier displays the new 2000 Indian rupee notes inside a bank in Jammu on November 15, 2016. REUTERS/Mukesh Gupta/File Image/File Image
Written by Aftab Ahmed and Swati Bhatt
NEW DELHI/MUMBAI (Reuters) – India and Russia have suspended efforts to settle bilateral trade in the rupee after months of negotiations that failed to persuade Moscow to keep the rupee in its coffers, two Indian government officials and a source familiar with the matter said. .
This will be a major setback for Indian importers of cheap oil and coal from Russia who have been waiting for a permanent rupee payment mechanism to help lower currency conversion costs.
With a large trade gap in favor of Russia, Moscow believes it will end up with an annual rupee surplus of more than $40 billion if such a mechanism is put in place and feels that the rupee accumulation is ‘unwanted’, according to an Indian government official, who has not. You want to mention her name to Reuters.
India’s finance ministry, the Reserve Bank of India and Russian authorities did not immediately respond to requests for comment.
The rupee is not fully convertible. India’s share of world exports of goods is also only about 2% and these factors reduce the need for other countries to hold the rupee.
India began exploring a mechanism for rupee settlement with Russia soon by invading Ukraine in February last year, but no rupee deal was reported. Most of the trade is done in dollars but an increasing amount is done in other currencies such as UAE dirhams.
Both sides have talked about facilitating trade in local currencies, but the guidelines have not been formally formulated.
A second Indian government official involved in the discussions said that Russia is not comfortable with holding rupees and wants to be paid in other currencies or other currencies.
“We don’t want to pay the rupee settlement anymore, this mechanism is not working. India has tried everything we can to try to make this work but it hasn’t helped,” a third source with direct knowledge of the developments said. He said.
Since Russia’s invasion of Ukraine on February 24 last year, India’s imports from Russia have risen to $51.3 billion as of April 5, from $10.6 billion in the same period a year earlier, according to another Indian government official.
Graphic: India’s exports to Russia drop
https://www.reuters.com/graphics/INDIA-RUSSIA/OIL/lgvdkqzgqpo/chart.png
Discounted oil made up a large part of India’s imports, jumping twelve-fold in the period. The official said exports from India in the same period fell slightly to $3.43 billion from $3.61 billion a year earlier.
Another official said the two countries had begun to look for alternatives after the rupee settlement mechanism did not work, but gave no details.
Graphic: Rise of India’s imports from Russia
https://www.reuters.com/graphics/INDIA-RUSSIA/OIL/jnvwykdrxvw/chart.png
Trade on the right track
The sources said trade with Russia continues despite the sanctions and payment issues.
“At the moment we make some payments in dirhams and a few other currencies but the majority is still in dollars. Settlement is taking place in different ways, other countries are also being used,” said one government official.
Officials said Indian merchants are currently settling some commercial payments outside Russia.
“Third parties are used to settle trade with Russia. There is no prohibition against doing business with other countries via SWIFT. So payments are made to a third country that directs or reimburses them for their trade with Russia,” the other official said.
On whether the money is being channeled through China, the official said: “Yes, including China.”