India’s love for discounted Russian oil is widening its trade deficit with Moscow, denting the much-touted rupee trade plan.
The gap between the two countries’ exports and imports is rising, making the local currency payment mechanism futile, Bloomberg reported, citing unnamed sources.
“No payment has been initiated because Russian banks do not want excess rupee piling up,” Bloomberg said, quoting people familiar with the matter.
New Delhi’s imports from Russia in eight months to November were almost 16 times its shipments to the nation, trade ministry data show.
Russia’s war with Ukraine, which invited US-led sanctions, germinated the idea of rupee trade as India boosted its purchases of cheap oil from Moscow to contain a rising import bill amid high commodity prices.
The mechanism worked as a template to draw out similar arrangements with other nations such as Mauritius and Sri Lanka.
India’s rupee trade plans with Russia
Slow progress in the rupee trade with Russia could add to pressure on the local currency which slipped the most against the dollar among emerging Asian currencies in the past 12 months.
India is betting on internationalisation of the rupee to reduce dollar demand and make its economy less vulnerable to global shocks after the current account deficit, the broadest measure of trade in goods and services, widened to a record in July-September.
Officials from the two nations met last month to discuss ways of enhancing exports to Russia in areas such as electronics so that the rupee trade mechanism can be brought back on track as traders mull other ways of settlement.
The plan to allow overseas trade to be settled in rupees was announced by the Reserve Bank of India in July.
Seven months later, the mechanism is largely limited to payments for import of defense equipment, the people said.
Payment in rubles is also a challenge because there is no fixed exchange rate for the currency, a Bloomberg report said, quoting a Bharat Petroleum Corp. Ltd. (BPCL) executive, who didn’t want to be named.
“Refiners would rather pay in the UAE dirham which is pegged to the dollar,” the BPCL executive said.
Spokespersons for India’s external affairs and trade ministries didn’t immediately comment on the matter, Bloomberg said.
Russia is now the biggest supplier of crude oil to India overtaking Iraq and Saudi Arabia. In December, the South Asian nation bought 1.2 million barrels of crude from Russia every day — a whopping 33 times more than a year earlier.
While crude continues to dominate their bilateral trade, imports of items such as sunflower oil and fertilizers have also jumped in the past few months.
As a result, India’s imports from Russia climbed more than 400 percent in eight months to November from a year earlier, while exports fell 14 percent, showing little success in the government’s efforts to improve outbound shipments.
“As far as we know, there has been no transaction in Indian rupees so far,” said Ajay Sahai, director general and chief executive officer of the Federation of Indian Export Organisations (FIEO),” the Bloomberg report said.
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