The government may soon give the green light to bilateral trade between Russia and India in their national currencies to avoid any trade disruptions, multiple people aware of the matter said.
While the Department of Commerce has recommended the proposal, an announcement is likely to be made by the finance ministry after further deliberations between the Department of Economic Affairs and Department of Financial Services.
“The finance ministry will take a call on how to peg the two currencies,” a senior government official told Business Standard.
In the past, the two nations have had rupee-rouble trade, and when such an arrangement is implemented again, it will bypass the sanctions imposed on Russia by the West.
“The mechanism is likely to be devised and implemented soon.
"The government is holding consultations with the Reserve Bank of India (RBI),” said another official.
With western nations deciding to block many Russian banks from accessing the Society for Worldwide Interbank Financial Telecommunication (SWIFT) — the messaging network used by financial institutions — following Russia’s invasion of Ukraine, exporters fear that payments worth about $400 million may get stuck.
Earlier this week, officials from the commerce ministry had discussions with exporters to understand their concerns.
Many buyers have expressed their inability to make payment in any foreign currency or from a third-party or country, and they have shown willingness to make payment in the rouble.
The government is examining the possibility, one of the officials said.
The RBI is also likely to come up with a plan soon, and has collected information from Indian banks.
Similar to what happened in 2014, a bank that does not have much exposure to the United States is likely to be selected, another official said.
“When sanctions were imposed on Iran, UCO Bank acted as a facilitator, as the lender did not have exposure in the United States.
"Similarly, when sanctions were imposed on Myanmar, United Bank of India was designated to facilitate trade in the euro by routing transactions through Singapore,” the official explained.
However, the only challenge at the moment is fixing the exchange in rupee-rouble trade as the Russian currency has depreciated sharply due to the ongoing war with Ukraine.
Recently, Finance Minister Nirmala Sitharaman had expressed concern about the future of exporters as geopolitical tensions were set to raise international freight rates and crude oil prices further.
She had also cited import dependence regarding essential items such as sunflower oil and fertilisers on the region.
Russia was India’s 25th largest trading partner as of 2021-22, with the size of the total trade at $9.4 billion during the first three quarters of the current fiscal.
Its share of exports compared to India’s total exports is at less than 1 per cent.
Imports from Russia have a share of 1.27 per cent. Trade balance has been in favour of Russia, at least in a decade.
Electrical machinery and equipment, nuclear reactors, pharmaceutical products, iron and steel, organic and inorganic chemicals are the top items exported to Russia.
Key imported items include mineral oils, vegetable fat, fertilisers, and rubbers.
