Sanctions-hit Russia has offered to pay Indian exporters in the euro or the dollar, as Moscow has adequate reserves of these currencies, sources told FE. However, India hasn’t yet made up its mind on receiving such payments, as it would be difficult for it to ensure conversion of these currencies into rupee without upsetting key western nations that have been asking New Delhi to condemn Moscow’s invasion of Ukraine, one of them said.
Separately, Russian foreign minister Sergei Lavrov, who is on a visit to India, said on Friday the two countries would use a rupee-rouble mechanism to trade oil, defence equipment and other goods.
“I have no doubt that a way would be (found) to bypass the artificial impediments which illegal unilateral sanctions by the West create. This relates also to the area of military-technical cooperation,” Lavrov said. Russia’s offer to pay in the dollar or euro precedes Lavrov’s visit and still stands, said one of the sources.
Some Indian exporters have claimed that $400-600 million in payment is stuck, although there is no official word on it. Domestic banks have put on hold fresh transactions with the sanctioned Russian banks and are awaiting direction from the Reserve Bank of India on the way forward. “Russia has enough reserves of both the dollar and euro. The European nations were paying in euros for their energy imports from Russia. Before the Ukraine war, Russia also had huge foreign exchange reserves; of course, most of these have been frozen. So, they (Russia) say they can pay in either of the currencies. The issue is that of conversion,” one of the sources said.
For instance, if the settlement for a Russian dollar payment takes place in New York through the Clearing House Interbank Payments System, which is a large private sector dollar clearing system, it will potentially draw the US ire.
Already, following Russia’s attack on Ukraine, the US and its European allies decided to block certain Russian banks from the SWIFT financial-messaging infrastructure for cross-border payment. VTB, Russia’s second-largest bank by assets, VEB, another big player, and five smaller ones have been cut off from the SWIFT. This has adversely affected trade transactions with Russia. While transactions can still happen through the Russian banks that are not under sanctions yet, foreign banks are not willing to deal with them in a big way.
Moscow has also offered New Delhi rupee-rouble trade using Russia’s messaging system SPFS, trade sources said. However, any such move could put India in a spot.
Meanwhile, Russian Foreign Minister Sergei Lavrov has been in India for a two-day visit starting Thursday. The US has been impressing on India to condemn the Russian aggression in Ukraine. It had earlier said India buying Russian oil wouldn’t amount to a violation of western sanctions, but it exhorted New Delhi not to be in the wrong side of history by scaling up such imports from Moscow.
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 FY22). So, payments shouldn’t be an issue, if a proper rupee-rouble architecture is worked out, exporters said.
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, via the rupee-rial regime, for supplying to sanctions-hit Iran. However, operationalising such a framework is much easier said than done in the current context. So, the government may choose to wait it out until situation in Ukraine shows some sign of normalcy.
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%.