Centre may allow rupee-ruble trade in phases starting with agri, pharma

The Central government is considering allowing India-Russia trade in local currencies initially in sectors such agri, pharma, and energy, where sanctions have not been imposed collectively by the US and its allies, according to people aware of the deliberation.

More discussion will be required to facilitate trade in other sectors such as defence. Or else, it would send a signal to Western countries that India is bypassing the sanctions. A strategic decision would be required for such trade, people said.

“If we are going beyond sectors such as energy, pharma, and agri, then it may signal that we are not abiding by the sanctions,” said a person in the know. “It’s a strategic decision. Trade is one part; what kind of message we are giving Europe or the US is equally important,” he added.

The rupee-ruble trade will be easier to implement in those (agri, pharma, and energy) sectors, said a second person who is in the loop.

“For other sectors, there is a need to take a conscious call whether we are going by the sanctions or not. So that’s a difficult choice,” the person added.

A call on trade in defence equipment and items of dual usage, which include defence, may be taken after extensive deliberations, the person said.

The Reserve Bank of India is consulting banks such as UCO Bank, which had acted as facilitator when sanctions were imposed on Iran, and State Bank of India (SBI) as the Centre looks to appoint a third party for facilitating payments. 

The RBI may take a call on how to peg the exchange rate for such trade, keeping in view the value of the depreciating ruble, people quoted above said.

Exporters are grappling with payments-related challenges as the US and its allies have blocked many Russian banks from accessing Society for Worldwide Interbank Financial Telecommunication (SWIFT), which is a messaging system to enable cross-border payments.

Exporters have conveyed their worries to the government. They have urged the government that trading in rupee-ruble mechanisms or local currencies should start.

This will allow Russian importers to pay in rubles and enable Indian exporters to do so in rupees. Russian government-backed banks such as Sberbank and VTB operating in India may be roped in to facilitate transactions.

According to Madan Sabnavis, Bank of Baroda’s chief economist, India has taken a neutral stance on Russia and hence there is no official ban on trade and investment transactions between the two countries.

“For transactions to be consummated between two countries, it is imperative to have an exchange rate. With Russia being blocked out of SWIFT, transactions have to be settled in local currencies. The central banks of the two countries have to discuss how one should arrive at the appropriate rupee-ruble rate,” Sabnavis said.

“Certain essential goods like pharma and energy are not banned from/to Russia by some western nations. But with SWIFT being the main medium of transferring funds, these trade actions will be difficult. Besides, the ruble has fallen sharply against the dollar ever since the war started and there were talks of sanctions,” Sabnavis said.

Earlier this week, Finance Minister Nirmala Sitharaman had said there was an offer that Russia was giving crude oil at discounted prices, but there were several factors that would decide if oil could be imported from Russia.

Trade troubles

• Grappling with payments-related challenges, exporters want trade in local currencies
• More deliberations needed to facilitate trade in sectors such as defence
• RBI consulting UCO Bank and SBI as govt looks to appoint a third party for facilitating payments
• RBI may take a call on how to peg the exchange rate for such trade in view of the depreciating ruble