India and Russia Suspend Efforts to Settle Trade in Rupees: Report

India and Russia halt efforts to settle trade in rupees, citing rupee surplus concerns

According to two Indian government officials and a source with direct knowledge of the matter, India and Russia have suspended efforts to settle bilateral trade in rupees after months of negotiations failed to convince Moscow to keep rupees in its coffers. This move is a significant setback for Indian importers of cheap oil and coal from Russia who were awaiting a permanent rupee payment mechanism to help lower currency conversion costs.

With a high trade gap in favour of Russia, Moscow believes it will end up with an annual rupee surplus of over $40 billion if such a mechanism is worked out and feels rupee accumulation is "not desirable," an Indian government official who did not want to be named told a news agency.

India's share of global exports of goods is just about 2%, and the rupee is not fully convertible, reducing the necessity for other countries to hold rupees. Since Russia's invasion of Ukraine in February last year, India's imports from Russia have risen to $51.3 billion until April 5, from $10.6 billion in the same period in the previous year, according to another Indian government official. Discounted oil has constituted a large part of India's imports, surging twelve-fold in the period. Exports from India in the same period fell slightly to $3.43 billion from $3.61 billion in the previous year, the official said.

Despite the suspension of negotiations, trade with Russia has been continuing despite sanctions and payment issues. Indian traders are currently settling some of the trade payments outside Russia, and third parties are being used to settle trade with Russia. "There is no ban on transacting with other countries over SWIFT. So payments are being made to a third country which route it or offset it for their trade with Russia," an Indian government official said. Payments are also being routed via China, the official added.

In conclusion, the suspension of efforts to settle trade in rupees between India and Russia is a major setback for Indian importers of cheap oil and coal. The decision comes after months of negotiations failed to convince Moscow to keep rupees in its coffers, with Russia fearing accumulating a rupee surplus of over $40 billion annually and not feeling comfortable holding the currency. Despite the suspension of negotiations, trade with Russia has been continuing despite sanctions and payment issues.

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India and Russia suspend efforts to settle trade in rupees

Rupee surplus concerns lead to suspension of negotiations