India’s plans to trade with Russia using their national currencies, the rupee and the ruble, have reportedly hit a roadblock. The plan, which was first announced in 2018, aimed to bypass the US dollar and reduce transaction costs between the two countries.
However, according to reports, the two countries have failed to reach an agreement on the exchange rate for the trade. India is said to have proposed a fixed exchange rate between the two currencies, but Russia is reportedly seeking a floating exchange rate based on market conditions.
The gap between their exports and imports is rising and that’s making the local currency payment mechanism futile, people familiar with the matter said, asking not to be identified as the discussions are private. No payment has been initiated because Russian banks do not want excess rupee piling up, they said.
According to figures from the trade ministry, New Delhi imported over 16 times as much from Russia in the eight months leading up to November as it exported. Rupee commerce began to take shape as a result of Russia’s conflict with Ukraine, which prompted sanctions led by the United States and India and caused India to increase its purchases of inexpensive oil from Moscow to offset rising import costs. With other countries like Sri Lanka and Mauritius, the process served as a model for creating similar agreements.
This disagreement has led to a delay in the implementation of the trade plan, which was originally supposed to begin in 2019. Despite several rounds of negotiations, the two countries have not been able to reach a compromise.
The trade plan was seen as a way for India to reduce its dependence on the US dollar, which has been a source of concern due to the potential impact of US sanctions on Indian businesses. The plan also aimed to boost bilateral trade between the two countries, which has been relatively low.
India and Russia have a long-standing relationship, with Russia being one of India’s major defense partners. The two countries have also cooperated in other areas such as energy, space, and technology. However, the trade plan has faced several challenges, including the impact of the COVID-19 pandemic and the decline in oil prices, which has affected the Russian economy.
Despite the setbacks, both countries have expressed their commitment to the trade plan and have continued negotiations to resolve the exchange rate issue. The success of the plan could have significant implications for other countries looking to reduce their dependence on the US dollar and increase trade with Russia.
India’s plans to trade with Russia using their national currencies have faced challenges due to a disagreement on the exchange rate. However, both countries remain committed to the plan and are continuing negotiations to find a solution. The success of the plan could have broader implications for other countries looking to reduce their reliance on the US dollar.
“As far as we know , there has been no transaction in Indian rupees so far,” said Ajay Sahai, director general and chief executive officer of the Federation of Indian Export Organisations.
India’s current account balance recorded a deficit of $23.9 billion (2.8 percent of GDP) during the first quarter of 2022-23, up from $13.4 billion (1.5 percent of GDP) during the fourth quarter of 2021-22 and a surplus of $6.6 billion (0.9 percent of GDP) during the first quarter of 2021-22, RBI had said in a press statement in September. India’s trade deficits have been high with China, Switzerland, Saudi Arabia, Iraq and Indonesia. India trade surpluses have been with the US, United Arab Emirates, Hong Kong, United Kingdom and Vietnam.
