Exporters in Russia fixated as Sberbank levies raise costs

The move assumes significance since Russia’s biggest lender Sberbank, which is outside Western sanctions, is one of the few Russian banks that have agreed to settle trades in the rupee.

To address these concerns, in July, the Reserve Bank of India proposed a rupee settlement mechanism for trade with Russia; However, the mechanism is yet to take effect.

Arun Kumar Garodia, chairman of the Engineering Export Promotion Council of India (EEPC), said banks are unsure how the rupee-rupee trade agreement works. “Some Russian banks, as well as Indian banks, have agreed to settle trade in rupees, but not all banks are on board. Their main bank is Sberbank, and they agreed to pay in rupees. But now, exporters In trouble because their website says an additional 4% premium will be charged, which makes trading more difficult.” A bank issues a Realization Certificate (BRC), which confirms that the exporter has received payment for the export of goods from the buyer.

India’s exports to Russia fell by almost 24% in the April-August period, without a smooth transaction mechanism and fear of Western sanctions.

At the same time, Russia has become one of India’s top energy sources, overtaking even traditional suppliers Saudi Arabia and Iraq.

“The Russians need a hard currency, and this will create a problem of change in rupee trade,” said Biswajit Dhar, a professor at the Center for Economic Studies and Planning, School of Social Sciences at Jawaharlal Nehru University. due to trade deficit. Furthermore, the exchange rate has been an issue, which has resulted in disagreements in the past as well. With the current trade imbalance, the rupee settlement mechanism is difficult. Moreover, the trade gap is widening as Indian exporters fear getting hit for dealing with sanctions-hit Russia,” Dhar said.

Ajay Sahai, director general of Federation of Indian Export Organizations (FIEO), said some exporters reported higher conversion charges levied by some banks in rupee-ruble trade.

“However, such transactions are not covered under the new rupee payment mechanism notified by RBI on July 11, 2022. The RBI-designed mechanism covers trading in Indian Rupees only, thus eliminating exchange risk. Since some banks have tied up with their counterparts in Russia with respective bank relationships and DGFT has clarified the availability of full export benefits on such transactions, we expect it to be operational in a week or two .

Queries sent to the Ministry of Commerce, the Russian Embassy in India and Sberbank remained unanswered till press time.

Currently, India-Russia trade takes place through 12 or 13 small Russian banks, which are not on the sanctioned list, and they transfer payments in dollars from the Russian side to Indian exporters’ banks, said an exporter. He said that while the public sector banks are crediting the payments in the accounts of exporters and giving BRCs, the private sector banks are not doing so.

After the amendments made in the foreign trade policy by DGFT last week, exporters doing business in rupee terms will be able to avail export incentives or duty exemptions. The move is aimed at encouraging exporters to boost shipments to countries like Russia. Negotiations are also going on with other countries including Cuba and Sudan to settle the trade in rupee terms.

According to a study by FIEO, India’s shipments to Russia could increase by up to $5 billion once the rupee settlement mechanism becomes functional.

The study shows that agricultural products, food, pharma and engineering equipment are the key sectors where India can see growth in exports to Russia. It added that with supplies from the European Union nearing a halt, especially for industrial and engineering goods, this could be a huge opportunity for India.