As the West imposes harsh sanctions on Russia to halt its invasion of Ukraine, India – one of Russia’s trading partners – is under pressure to reduce its oil imports, defense imports.
As the West imposes harsh sanctions on Russia to halt its invasion of Ukraine, India – one of Russia’s trading partners – is under pressure to reduce its oil imports, defense imports.
In the wake of the Russian invasion of Ukraine, the European Union has banned global transactions with Russian entities using euro-denominated banknotes, while the US has cut Russia’s access. U.S. Dollar, This made India, which continues to trade with Russia, consider reviving the rupee-ruble mechanism, which was first used in 1953.
What is Rupee-Ruble Mechanism?
The rupee-ruble trading arrangement is an alternative payment mechanism for settling dues in rupees instead of in dollars or euros. The idea was first conceived in 1953 under Indo-Soviet trade agreement,
Under Article VI of the Indo-Soviet Agreement:
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All payments between India and the erstwhile Soviet Republic of the USSR could be made in Indian Rupees.
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For this purpose the State Bank of the USSR shall maintain one or more accounts in India with one or more commercial banks which are authorized to deal in foreign exchange. In addition, the State Bank of the USSR, if that bank considers necessary, will maintain another account with the Reserve Bank of India.
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All commercial transactions to be financed in rupees will be through commercial bank accounts, while the Reserve Bank of India account will be used to replenish balances with commercial banks only when necessary.
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Payments made to and by Indian residents and USSR residents shall be made by debit/credit only to those specified accounts.
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the accounts shall be replenished by (a) transfer of funds from another account of the State Bank of the USSR to another commercial bank or the Reserve Bank of India; or (b) by selling the sterling to the bank concerned.
Covered Payments:
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Covering commercial transactions and insurance, freight, port charges, warehousing and forwarding expenses and bunkering
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distribution of films
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technical support
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commercial or cultural nature tours
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Embassy of India in the USSR and Embassy of the USSR in India and Maintenance of Trade Representation
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Other non-business payments agreed between the Reserve Bank of India and the State Bank of the USSR
Center on Reviving Rupee-Ruble Mechanism
On March 24, 2022, External Affairs Minister S Jaishankar told Parliament that a multi-ministerial group had been set up to address challenges in trade with Russia, including managing payments for exporters and importers – which Indicates a possible revival of the ‘Rs’. – Double trade’.
Responding to a question by Akali Dal MP Naresh Gujral whether the government would reactivate rupee trade with Russia, Jaishankar said, “Due to the emerging problems in dealing with Russia, [the] The government is examining various aspects including the payment aspect.
“There is a group within the government made up of different ministries. The Finance Ministry is headed to investigate these matters,” he said. The Russian delegation is likely to visit India in May to discuss the Rupee-Ruble payment mechanism.
Why revive the rupee-ruble trade?
More than 40 US and European allies have imposed economic sanctions against Russian banks and institutions amid the war in Ukraine. According to Bloomberg, Indian exporters are awaiting payments of around $500 million that have been delayed amid sanctions.
according to Commerce department, India currently has an import of Rs. 64,623 crore from Russia in 2021-22, which is an increase of 59.04% from the previous year. It accounts for 1.58% of India’s total imports.
In addition, India’s exports to Russia stand at Rs 23,658 crore in 2021-22, a growth of 20.4% from the previous year. India’s total trade with Russia stood at Rs 88,281 crore in 2021-22, which is an increase of 46.45%. Overall, India-Russia trade stands at Rs 68.98 lakh crore – a mere 1.28% of India’s trade figures.
India’s trade deficit with Russia is Rs 12.83 lakh crore, which includes crude oil, defense trade.
India’s oil and defense equipment imports
India – being a net importer of Russian goods – has increased its imports of Russian crude at present amid falling oil prices. according to this ReutersIndia bought at least 13 million barrels of Russian oil since the Ukraine war began on February 24, a sharp increase from last year, when India bought 16 million barrels of Russian oil throughout 2021.
Apart from this, India is also waiting for on-time delivery S-400 air defense system Under a deal signed in 2018. The deal – worth $5.43 billion – is facing US sanctions under CAATSA (Combating America’s Adversaries Through Sanctions).
In addition, several new deals are in the pipeline including 12 Su-30MKI aircraft and 21 MiG-29 fighter jets for the Indian Air Force. However, the Defense Ministry is reviewing all direct import deals to boost domestic manufacturing.