The government is expected to give green light to bilateral trade between Russia and India in their national currencies to avoid any trade disruptions, Business Standard reported.
While the proposal was recommended by the Department of Commerce, an announcement is likely to be made by the finance ministry after further deliberations between the Department of Economic Affairs and Department of Financial Services, reported BS.
“The finance ministry will take a call on how to peg the two currencies,” a senior government official said, BS reported.
The two countries have had rupee-rouble trade in the past, and if such an arrangement is implemented again, it would bypass the West-imposed sanctions on Russia. “The mechanism is likely to be devised and implemented soon,” said another official.
After Russia invaded Ukraine, western nations in form of sanctions, blocked many Russian banks from accessing the Society for Worldwide Interbank Financial Telecommunication (SWIFT). Consequently, exporters are apprehensive that payments amounting to nearly $400 million might get stuck.
Earlier this week, officials from the commerce ministry had discussions with exporters to understand their concerns.
Several buyers have expressed their inability to make payment in any foreign currency or from a third-party or country, and they showed willingness to make payment in the Russian currency i.e., rouble. The government is examining the possibility, one of the officials said.
The RBI is also likely to come up with a plan soon, and has collected information from Indian banks.
An official said a bank that does not have much exposure to the United States is likely to be selected for this. “When sanctions were imposed on Iran, UCO Bank acted as a facilitator, as the lender did not have exposure in the United States. Similarly, when sanctions were imposed on Myanmar, United Bank of India was designated to facilitate trade in the euro by routing transactions through Singapore,” the official explained.
But the key challenge right now is to fix the exchange in rupee-rouble trade in the aftermath of Russian currency’s steep depreciation due to the ongoing war with Ukraine.
Finance Minister Nirmala Sitharaman recently showed concern about the future of exporters as Russia-Ukraine tensions were growing. She also cited import dependence regarding essential items such as sunflower oil and fertilisers on the region.
Russia was India’s 25th largest trading partner as of 2021-22, with the size of the total trade at $9.4 billion during the first three quarters of the current fiscal.