As the government considers a proposal by exporters to allow the rupee-rouble trade to avoid any delay or default in payments, sections of Indian trade are worried the sharp weakening of the Russian currency in recent weeks will make it difficult for them to firm up contracts unless volatility in its movement abates.
More importantly, any such mechanism in the aftermath of western sanctions on Moscow has strategic ramifications for New Delhi. So, the ministry of external affairs, too, will pitch in with its advice, along with the ministries of commerce and finance and the central bank, official and trade sources told FE. If some of the past mechanisms are any indication, the rupee-rouble architecture will likely allow exporters to be paid in their local currency. But importers get to bear risks of currency fluctuations in such cases. The sharp fall of the rouble could, therefore, discourage the Russian buyers from getting into fresh contracts.
Importantly, Indian importers of Russian goods, especially oil and rough diamonds, will feel the same issues as well. New Delhi buys substantially more goods from Moscow than what it ships out to the latter (its bilateral trade deficit stood at $4.34 billion in the first three quarters of this fiscal). These concerns are being conveyed to relevant departments of the government, the sources said on condition of anonymity. “Payment in the rouble isn’t a good option (for Indian importers) due to volatility,” said the chief of a state-backed export promotion council, whose members rely on massive imports of raw materials from Russia for domestic value addition.
Nevertheless, the trade executives concede that options are limited in such a situation.
Russia had proposed the rupee-rouble trade in 2018 when the situation was normal, said one of the sources. “But these are not normal times; volatility in the rouble will continue. So, how to peg the two currencies remains the most difficult question. The RBI and the government have to firm up a mechanism that will address this key issue,” he said.
The rouble has weakened by more than 38% against the dollar this year. It lost 32% since February 22 when the Russian parliament authorises President Vladimir Putin to use military force outside the country. Similarly, the rupee has appreciated 26% against the rouble since the start of 2022 and 23% since February 22.
India mostly buys petroleum products, diamonds and other precious stones and fertilisers from Russia.
Similarly, it ships out capital goods, pharmaceutical products, organic chemicals and farm products to Moscow. Capital goods and certain consumer products made up 25% of India’s exports to Russia in the first three quarters of this fiscal, while pharmaceutical and organic chemicals accounted for over 22% and farm items 18%.