When India green-lighted invoicing and settlement of trade transactions in rupees last July, the expectation was that this move would facilitate more trade with Russia that is facing punitive US-led sanctions for its ongoing war in Ukraine, as also with neighbouring countries like crisis-ridden Sri Lanka. Settling a part of India’s growing import bill in rupees would ease the strains on its current account or goods and services trade with the rest of the world. This would reduce the demand for dollars to finance such imports and ease the downward pressure on the rupee. The rupee-rouble trading arrangement has since been put in place with the Reserve Bank of India approving the opening of special vostro accounts by more banks for settling cross-border trade in the Indian currency.A couple of months ago, this newspaper reported that settlement of foreign trade in rupees involving Russian firms had finally taken off. The big question is how much of India’s two-way trade with Russia—that has hit an oil-import driven high of $31 billion this fiscal to November—is invoiced and settled in local currencies? If Russia is seeking payment for its oil supplies and for defence equipment in UAE’s dirhams or the Chinese yuan, these developments are obviously not playing according to the script. Russia’s envoy to India, Denis Alipov, recently stated that although the mechanism of rupee-rouble trade has been established, Indian banks remain “over-cautious” due to concerns regarding “secondary restrictions” from the US.
No doubt, Moscow is moving away from the US dollar to sell commodities abroad. The fact that the rupee does not figure in these plans on the energy or defence front does not augur well for rupee-rouble trade. India is currently exploring three options to clear outstanding rouble payments worth Rs 28,000 crore against weapons delivered by Russia, according to The Indian Express (IE). The first is to initiate rouble payments in dirham or yuan as is being done by Indian refiners for Russian oil purchased through Dubai-based traders. Due to the sensitive nature of defence deals, the preference is for the dirham. The second is making rouble payments through a hybrid form of sovereign bonds in which the government will commit to pay the fixed amount later, inclusive of face value and interest. “It is being discussed if the dues to Russia can be shifted to a separate account in India and a sovereign guarantee issued over such deposits,” according to an official cited in IE. The last is to offer stakes to Russia in government-owned enterprises which can be liquidated in the future.There are no prizes for guessing that these options are on the table as Indian banks are not open to processing Russian payments due to the widening ambit of sanctions.
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What then is the future of rupee-rouble trade? As Western sanctions are unlikely to be lifted soon, both India and Russia “need to invent something new” to continue their bilateral engagement, stated Russia’s envoy to India. For his part, he remains cautiously optimistic that banks will take more time to get confident to expand the usage of the rupee rouble arrangement. But till that happens, India and Russia are not restricted from using currencies of third countries. India must push the global acceptance of the rupee though its inclusion in the continuous linked settlement initiative which provides protection for cross-currency settlement in 18 currencies.
