As the government weighs the rupee-rouble trade to avoid any delay or default in payments in the wake of the Ukraine crisis, it is planning to peg the payment mechanism to a third international currency to ensure Indian exporters don’t lose out if the Russian currency fluctuates sharply.
The dollar or the euro could be used to determine how many roubles would be equivalent of a rupee, based on their respective value against the third currency, a top source told FE. “But, given the recent sharp volatility in the rouble movement, this has to be a dynamic rate, and not a fixed one,” he added. Any such mechanism will allow exporters to get payments in their local currency.
However, the government is yet to take a final call on whether to allow such a payment mechanism in the first place. At the moment, it’s closely monitoring the situation, he added.
According to exporters, to operationalise this mechanism, the government has to nominate banks that will anchor the payments. For instance, Uco Bank facilitated payments to exporters, through the rupee-rial mechanism, for supplying to sanctions-hit Iran.
The rouble has weakened by more than 38% against the dollar in 2022. It lost over 32% since February 22 when the Russian parliament authorised 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.
The government is considering the rupee-rouble mechanism following requests by exporters, who fear massive defaults in payments for their supplies to Russia in the wake of western sanctions against Moscow. The Reserve Bank of India, too, has reportedly sought inputs from SBI and Uco Bank on this issue.
But any such mechanism in the aftermath of western sanctions on Moscow has strategic ramifications for New Delhi. So, the finance ministry will factor in the inputs from the ministry of external affairs, apart from the commerce ministry and the central bank, before allowing it to happen, sources had earlier told FE.
Bankers have said that the impact could be limited if the sanctions remain limited to only the two Russian banks. But if all Russian banks are cut off from the SWIFT global payment messaging network going forward, it will create troubles for Indian traders. Moreover, there will be only a very few global banks that would still be willing to keep ties with such Russian banks after the sanctions.
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). So, payments shouldn’t be an issue, if a proper rupee-rouble architecture is worked out, exporters said.
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%.
