The trade turnover between India and Russia rose by a whopping 130 per cent between January and August last year, reaching USD 17 billion. Representational Image/AP.
New Delhi: Late in December 2022, Russia became the first country to switch trade settlements in Indian rupee. Special ‘Vostro’ accounts are already being opened in Indian banks and also financial institutions from Moscow have been given the green signal to open accounts in Indian banks in INR.
Why trade in Indian rupee important for Russia?
Trade in Indian rupee or INR is important for Russia as Moscow’s assets in dollars and euros across the world have been seized and any currency of “unfriendly countries” in Russian accounts can be blocked, said a report by Russia Briefing.
For the unversed, within months after Russia began invasion of Ukraine, sanctions were slapped on Moscow by the European Union leading to billions of dollar and euro reserves of the country being frozen.
Notably, the European Commission has now launched a plan to try using these frozen assets of Russia to help finance the reconstruction of Ukraine.
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According to a report by Reuters, the European Union is eyeing two kinds of assets – 19 billion euros worth of sanctioned oligarchs money and an estimated 165 billion euros of frozen Russian reserves in euro zone central banks.
This game comes with a slight risk as the Indian rupee lost over 25 per cent against the Russian Ruble and 10 per cent against the US dollar, the report by Russian Briefing said.
Increase in Russia-India trade
The trade turnover between India and Russia rose by a whopping 130 per cent between January and August last year, reaching USD 17 billion. It was USD 3,2 billion during the same period the year ago.
The sharp increase in trade turnover could be attributed to the supply of Russian oil to India at a discount. Russia surpassed Riyadh and Baghdad to become India’s largest exporter of oil.
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After sanctions being imposed, Russia has asked for help from India with the supply of several goods that the country cannot purchase because of the sanctions imposed against it. The Indian Foreign Minister, Dr S Jaishankar said the country is ready to start deliveries of spare parts needed for Russian trains, cars and planes.
Goods India supplies to Russia
Russia using Indian rupee trade mechanism will increase the volumes of products that New Delhi supplies to Moscow. These include chemicals, machinery and vehicles, food, agricultural raw material, metals, textiles and footwear, precious metals and stones.
Also, an enhanced balance in trade turnover will make the ability to trade in the Indian rupee and Rubles more attractive as a means for Russia to minimise its current overbalance of acquiring INR when set against the Rubles volumes.
Goods exported to Russia under trade settlement in Indian rupee
According to a report by Business Standard, Indian exporters are shipping items including tea, pharmaceuticals and engineering goods to Russia under the rupee trade settlement mechanism.
The report quoted a person saying that such transactions are expected to pick up pace gradually amid the government’s efforts towards ironing out the teething issues related to the implementation of the rupee trade mechanism.
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“We are looking at the rupee trade mechanism to pave the way for greater trade between India and Russia. Over a period, we also expect diversification of exports to Russia,” the report quoted Ajay Sahai, director general and chief executive office of the Federation of Indian Exports Organisation (FIEO), as saying.
Vostro rupee accounts
As on December, nine Indian banks had received approval to open 17 special vostro rupee accounts for trade settlement with Russia.
These Indian banks are UCO Bank, Indian Bank, HDFC Bank, YES Bank, State Bank of India (SBI), IndusInd Bank, IDBI Bank, Canara Bank, and Union Bank of India.
Two more vostro accounts were opened with Russia’s two largest banks – Sberbank and VTB Bank.
Not just Russia, foreign trade settlement in the rupee is expected to kick start soon with smaller countries including Sri Lanka and Mauritius.
The India’s central bank – Reserve Bank of India, or RBI, – had allowed the opening of eight special vostro rupee accounts with four banks – SBI, Bank of Ceylon, Indian Bank, and HDFC Bank – for transactions related to trade with Mauritius and Sri Lanka.
India is also in touch with other nations including United Arab Emirates, Cuba, Sudan, and Luxembourg, to settle international trade in its currency.
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