NEW DELHI (Reuters) – India and Russia have halted efforts to settle a bilateral rupee deal after months of negotiations failed to convince Moscow to keep the rupee in state treasury. It did, two Indian government officials and a person familiar with the matter told sources familiar with the matter.
This would be a huge blow to Indian importers of cheap oil and coal from Russia.
With high trade disparities in Russia’s favour, Moscow believes that if such a mechanism were devised and rupee accumulation deemed “undesirable,” it would end up with an annual rupee surplus of more than $40 billion. It will be named, Reuters said.
The Indian Finance Ministry, the Central Reserve Bank of India and Russian officials did not respond to requests for comment.
The rupee is not fully convertible. India’s share of global merchandise exports is also only about 2%, and these factors reduce the need for other countries to hold the rupee.
India launched an investigation into its rupee settlement mechanism with Russia shortly after it invaded Ukraine last February, but no transactions in rupees have been reported. Most transactions are done in dollars, but there is an increasing number of transactions in other currencies such as the UAE dirham.
Both sides have discussed promoting local currency transactions, but the guidelines have not been formalized.
Russia dared not hold the rupee, preferring to pay in Chinese yuan and other currencies, said another senior Indian official who attended the talks. “We no longer want to push the rupee settlement.This mechanism is not working.India has tried everything to make this work but to no avail,” directly acknowledging the development.
Another Indian government official said India’s imports from Russia rose to $51.3 billion by April 5, from $10.6 billion in the same period last year, since Russia invaded Ukraine on February 24.
The battle continues. Trade with Russia continued despite sanctions and payment issues, sources said.
“We currently make payments in dirhams and a few other currencies, but the majority are still in dollars. Processing is done in a variety of ways, and third countries are also used,” said one of the government officials.
Indian traders are now also processing some trade payments outside Russia, officials said.
“Third parties are used to do business with Russia. SWIFT is not prohibited from trading with other countries. As such, payments are being made to third countries to transfer or compensate for trade with Russia,” another official said.