Russian banks and the government have approached Indian exporters with a plan for a rupee-rouble payment mechanism under which the Russian currency will be converted into Indian rupee at a specified exchange rate and the money will be deposited in an Indian bank account, in a move to counter US sanctions. The Indian government has still to decide if it will proceed as any such moves may imperil its relationships with the US and the EU.
Two Russian banks, Sberbank and VTB, have been identified by the government and the Reserve Bank of India, although a final decision on whether India will go for this route is awaited.
“The decision will be taken at the highest level. We have identified the banks from the Russian side and will shortly finalise the Indian counterpart,” said a government source.
According to the modalities proposed by one of the banks, an Indian exporter will have to sign another agreement with the Russian buyer. The buyer’s bank will then transfer the payment in roubles to the Russian bank’s branch in India at the rate of the day, which will then be transferred to the exporter’s bank in Indian rupees.
Given that Russia has a trade surplus with India, there will always be some money in the Indian account, explained an official.
Industry sources said that Russian banks have argued that there is no issue with the payment mechanism, despite the sanctions imposed by the US and its allies in Europe and have also shared the details on the proposed compliance norms.
A similar mechanism had been tried out with Iran almost a decade ago but had to be abandoned when sanctions came back to haunt the Asian country, which was until then a major source of oil imports for India.
India’s trade with Russia was estimated at over $8 billion during the last financial year, with imports pegged at around $5. 5 billion. Oil and diamonds make up for most of the shipments into the country. Of the exports of $2. 5 billion, pharma and machinery were the top items.
The government is looking at the payment options to ensure that Indian exporters get their dues, estimated at $400-500 million, at the earliest. Besides, Russian oil companies and diamond players have been investigating that they are willing to supply the two products.
Apart from payments, the government will also have to take care of shipping channels and insurance cover for the shipments. Bilateral trade between the countries is $10 billion