New Delhi: After months of negotiations, India and Russia have suspended their efforts to enter into bilateral trade in rupees as India fails to convince Moscow to keep rupees in its treasury, told to two Indian government officials along with a source who is directly linked with the matter said.
This comes as a major disadvantage for Indian importers of cheap oil and coal from Russia who were waiting for this mechanism of permanent rupee payment to help curb currency conversion costs.
As per Indian government officials, trade that is mostly carried out is done in US dollars, while an increasing amount of trade is being done in UAE dirham. Due to this, Indian traders are also opting out to settle some of their trade payments outside Russia.
Having a high trade gap in favour of Russia, Moscow believes that it will end up with an annual rupee surplus of over $40 billion if things work out and takes rupee accumulation to be ‘not desirable’, an Indian government official told Reuters.
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Reason to not accept Rupee just yet!
The main reason for the rupee not being accepted is that the rupee is not fully convertible. With this, India’s share in the global export of goods sums up to just 2% which is also the reason that other counties do not show interest in holding rupees.
Russia, however, is not comfortable with holding rupees and wants to be paid in Chinese yuan or other currencies, a second Indian government official in the discussions said.
India started developing interest in the rupee settlement mechanism with Russia after it invaded Ukraine in February a year back, but still, it remains merely a discussion with no reported deals done in rupees.
Since Russia captured Ukraine last year, India’s imports from Russia have increased to $51.3 billion until April 5, from $10.6 billion during the same period a year back, another Indian government official told.
On the other hand, discounted oil has occupied a large part of India’s imports, increasing by twelve-fold times in this period.
A huge decline gap was seen in exports from India, falling from $3.61 billion to $3.43 billion in the previous year, the officials said.
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Trade back on tracks
Despite not being able to settle a deal, both countries are still looking for an alternative. As per sources, trade with Russia is still in continuation in spite of sanctions and payment issues.
“Third parties are being used to settle trade with Russia. There is no ban on transacting with other countries over SWIFT. So payments are being made to a third country which routes it or offset it for their trade with Russia,” the other official said.
The officials also reported about money being routed via China.
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