India and Russia have halted their efforts to establish bilateral trade settlements in rupees after several months of unsuccessful negotiations. Moscow remains unconvinced about holding rupees in its reserves, according to two Indian government officials and a source with direct knowledge of the situation.
This decision is a significant blow to Indian importers who relied on affordable oil and coal from Russia and were anticipating a permanent rupee payment system to reduce currency conversion expenses.
An Indian government official, who requested anonymity, informed Reuters that due to the considerable trade imbalance in Russia's favor, Moscow believes it would face an annual rupee surplus of over $40 billion if such a mechanism were implemented. The official added that Russia views the accumulation of rupees as "not desirable."
The rupee is not fully convertible, and with India's share of global goods exports at only about 2%, the necessity for other countries to hold rupees is minimal.
India began exploring a rupee settlement mechanism with Russia shortly after the invasion of Ukraine in February last year. However, no deals have been reported in rupees, with most trade conducted in dollars or other currencies like the UAE dirham.
Although the two nations discussed facilitating trade in local currencies, the guidelines were never formalized.
A second Indian government official involved in the talks stated that Russia prefers payment in Chinese yuan or other currencies, rather than holding rupees.
A third source with direct knowledge of the developments said, "We don't want to push rupee settlement any more, that mechanism is just not working. India has tried everything we could to try and make this work but it hasn't helped."
India's imports from Russia have increased to $51.3 billion since Russia's invasion of Ukraine on February 24, 2021, up from $10.6 billion in the same period the previous year. Exports from India during this timeframe dropped slightly to $3.43 billion from $3.61 billion the previous year.
The sources revealed that trade between India and Russia has continued, despite sanctions and payment challenges.
One of the government officials stated, "Right now we are making some payments in dirham and a few other currencies but the majority is still in dollars. Settlement is happening in different ways, third party countries are also being used."
Indian traders are currently settling some trade payments outside Russia, and third parties are being utilized for trade settlements with Russia. The official added, "Yes, including China."
