India explores rupee payment mechanism for trade with Russia
Bombay:
India is exploring ways to set up a rupee payment mechanism for trade with Russia to soften the blow to New Delhi from Western sanctions imposed on Russia after its invasion of Ukraine, government and banking sources said.
Indian officials are concerned that vital fertilizer supplies from Russia could be disrupted as sanctions mount, threatening India’s vast agricultural sector.
India has called for an end to violence in Ukraine, but has not spoken out against Russia, with which it has long had political and security ties.
Russia on Thursday invaded Ukraine by land, air and sea in the biggest attack on a European state since World War II, forcing tens of thousands of people to flee their homes.
Russian troops pushed for their advance on Friday and Ukrainian President Volodymyr Zelenskiy begged the international community to do more, saying the sanctions announced so far were not enough.
Officials said the plan was to get Russian banks and companies to open accounts with a few state-owned banks in India for trade settlement, a banking source involved in the discussions said.
“This is a proactive move, assuming the conflict escalates and a range of sanctions could be in place,” the source said.
“In this case, we would not be able to settle the transaction in dollars and therefore an arrangement has been proposed to set up a rupee account, which is being considered.”
Funds in such accounts act as a payment guarantee for trade exchanged between two countries as the parties exchange goods from each other to offset the amount, the source said.
A similar arrangement, with part of the settlement with Russia in foreign currency and the rest through local rupee accounts, was also under investigation, the bank and government source said.
Such mechanisms are often used by countries to protect themselves from the blow of sanctions and India also used it with Iran after it came under Western sanctions for its nuclear weapons program, the source said.
The program was introduced in 2012 and has worked well for a number of years.
Talks on Russia are still at an early stage and formal talks between the two sides have not yet started, an Indian government official said.
EU leaders agreed on Thursday to impose new economic sanctions on Russia, with the United States and Britain seeking to punish Russian President Vladimir Putin and his allies for the attack.
The sanctions hamper Russia’s ability to do business in major currencies and target individual banks and state-owned companies.
The Treasury Department did not immediately respond to a request for comment. None of the sources wanted to be identified as the discussions are private.
Russian exports to India amounted to $6.9 billion in 2021, mainly mineral oils, fertilizers and rough diamonds, while India exported $3.33 billion worth of goods to Russia in 2021, mainly pharmaceuticals, tea and coffee.
Russia and Belarus usually account for nearly a third of India’s total potassium imports. It would not be feasible to replace them amid a spike in fertilizer prices to record highs, a senior industry official told Reuters.
New Delhi will also meet with fertilizer industry officials on Friday to explore ways to secure supplies from Russia and Belarus, a senior fertilizer industry official said, who declined to be identified.
