Anonymous Indian government sources told Reuters that despite months of negotiations, New Delhi’s efforts to persuade Moscow to settle commerce between the two nations using the Indian rupee (INR) have failed, and talks have been terminated.
Suspension of talks would be a severe setback for Indian companies that buy inexpensive coal and oil from Russia and are looking forward to a long-term rupee payment system to help reduce currency conversion fees.
Overview
After Russia invaded Ukraine in February last year, it began discussions of a rupee settlement mechanism with India; however, a deal has yet to be reached. Most trade is conducted in dollars, although a rising percentage is conducted in other currencies, such as the UAE dirham.
According to sources quoted by Reuters, with a high trade gap in Russia’s favour, Moscow estimates it will end up with an annual rupee surplus of more than $40 billion if such a system is implemented, and considers rupee accumulation as “not desirable.”
INR conversions are limited. In addition, India only accounts for around 2% of all products exported globally; thus, other nations are less likely to need to retain rupees.
Russia reportedly prefers to be paid in Chinese Yuan or other currencies as opposed to rupees.
India-Russia have suspended efforts to settle bilateral trade in rupees, after months of negotiations failed to convince Moscow to keep rupees in its coffers.#India #Russia #Moscow #Trade #Rupee https://t.co/QAJ42Co2gB
— Business Standard (@bsindia) May 4, 2023
“We don’t want to push rupee settlement anymore, that mechanism is just not working,” one of the three anonymous sources told the outlet.
As reported by another Indian government official, since Russia invaded Ukraine on February 24 last year, India’s imports from Russia have increased to $51.3 billion through 5 April, up from $10.6 billion around the same time last year.
The Reserve Bank of India has allowed Russia to register special Vostro accounts in India in last August, allowing them to participate in India’s equity and bond markets. “Russia is a bit perplexed as to how it can invest in India’s equity and bond market. We are trying to explain the advantages but they have yet to take a call,” a senior government official said.
Trade with Russia has continued despite sanctions and payment concerns. Another official stated, “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 routes it or offset it for their trade with Russia.”
'Wishful thinking by #western news agencies,' said #Moscow , rubbished reports claiming suspension of settling #India -#Russia trade in Indian #rupee#FPWorldhttps://t.co/MUKVSdMFFi
— Firstpost (@firstpost) May 5, 2023
Russia Denounces False Media Reports
Russia was one of the first of the 19 nations to agree to use INR to facilitate bilateral trade settlements with India. To this end, India and Russia have been discussing ways to facilitate INR trading for almost a year. However, reports in some Western media on Thursday suggested that negotiations on trade settlements using the rupee had failed to persuade Moscow.
Indian news agency ANI quoted a Russian official as saying, “No change in bilateral developments, Wishful thinking by Western news agencies.”
The US and its allies imposed sanctions on Moscow last year after Russian President Vladimir Putin began his “special military operation” in Ukraine. Following the sanctions, Russia began trading in local currencies with other countries.