India and Russia may keep ruble out of the proposed rupee-ruble trade

Payments are likely to be settled in rupee pegged to dollar

India and Russia may keep the ruble out of the proposed rupee-ruble trade, given the high volatility in the Russian currency after Western nations imposed sanctions on the country. Payments are likely to be settled in the rupee pegged to the dollar, and deposited in an Indian bank account.

“The rupee-ruble trade may not be feasible as the ruble has depreciated sharply. Instead, trade can be valued in the rupee pegged to the dollar. The Reserve Bank of India (RBI) is working out the details in consultation with Indian and Russian banks,” a government official said.

According to the official, under the proposed mechanism, when India imports goods from Russia, rupee, equivalent to the dollar, can be deposited in an Indian bank account. 

When India exports goods to Russia, Indian exporters can be paid from the same account in the domestic currency.

According to exporters, payments up to $400 million continue to be stuck, with western nations deciding to block many Russian banks from accessing the Society for Worldwide Interbank Financial Telecommunication (SWIFT) system.  

A former commerce secretary said since India cannot pay Russia in hard currency, it can deposit the amount into an Indian account. “Russia has a trade surplus with us. Hence, they have enough resources to buy Indian goods. That is how the trade will get settled,” he explained.

External affairs minister S Jaishankar informed Parliament last week that because of the emerging problems in dealing with Russia, the government is examining various aspects including the payment aspect. 

However, the official quoted earlier said government remains worried about how Western countries will receive any payment from Russia. “Even when a payment mechanism is finalised, there may not be a formal announcement,” he added.

India has, so far, abstained from voting in the UN Security Council on Russia-Ukraine crisis. Last week, US President Joe Biden said India was an exception among Washington’s allies with its “shaky” response to Russia’s war against Ukraine. A senior White House official, Mira Rapp-Hooper, director for the Indo-Pacific on the White House National Security Council on Friday said India’s position at the United Nations over the crisis in Ukraine has been “unsatisfactory” but was also “unsurprising” given its historical relationship with Russia.

Priyadarshi Dash, associate professor at Research and Information System for Developing Countries (RIS) said since ruble, as a currency, has lost its public confidence, it can’t be taken as a reference currency. “Government can either peg it to the dollar as the benchmark or use the rupee-ruble exchange rate in normal times,” he added.