Months after the Reserve Bank of India (RBI) introduced the rupee trade settlement mechanism, the payments for shipments to Russia will be settled in rupees next week for the first time, reported Mint. This comes amid growing demand from Russia for drugs and auto parts.
Federation of Indian Export Organisations (FIEO) director general Ajay Sahai told Mint, “A number of issues have been sorted out. Exporters and importers have begun approaching banks for opening of accounts…So, trade settlement with Russia under the new payment system is expected from next week for some shipments. The difference with Iran is that India is not importing oil and fertilizers (from Iran) like we are doing with Russia; so, the Vostro account is dry. Similar kinds of sanctions are on Iran too.”
The report also quoted experts saying that the rupee settlement will address the issue of India’s widening trade deficit with Russia. Since the war in Ukraine started, Russian oil imports have skyrocketed while Indian traders are finding it difficult to reach Russia amid western sanctions.
Indian exporters are also having to pay an additional charge of 4 per cent for settling these trades with state-run Sberbank.
“With Russia, our imports are 10 times the exports. But there is a very good chance of increasing our exports to Russia. That’s because when they are holding much of the Indian rupees, either they will want to invest in capital in India or they will increase our exports,” an official told Mint.
Five to six banks had been allowed to open Vostro accounts for rupee trade settlement, and 10-11 such accounts have been opened so far, the report also noted.
Sahai said, “Russia requires almost everything under the sun. But these are just inquiries at the stage. How many will translate into an order will depend on a number of factors. Because right now, they are exploring if we can supply the product or not. There are other countries looking into the business. So cost, competitiveness and several factors will play a role. Indian exporters have a diversified market; so, whenever they take a call, they will factor in all the issues. They have exposure in Europe and the US. Russian importers have only shared the product list and not the quantity.”