As per the Ministry of Commerce and Industry’s data, India’s exports to Russia have witnessed a decline of 11.6% to $2.8 billion during the first 11 months of the 2022-23 financial year. On the other hand, imports from Russia have surged almost five times to $41.56 billion during the same period.
According to Foreign Minister Sergei Lavrov, Russia has amassed billions of rupees in Indian banks that are currently unusable due to a growing trade surplus with the South Asian nation.
Russian Foreign Minister Sergey Lavrov expressed his concern to reporters in Goa during the Shanghai Cooperation Organization meeting, stating, “This is a problem.” The money needs to be utilized. Discussions are currently underway regarding the transfer of these rupees into another currency in order to proceed with the matter at hand.
As per the Ministry of Commerce and Industry’s data, India’s exports to Russia have witnessed a decline of 11.6% to $2.8 billion in the first 11 months of the 2022-23 financial year. In contrast, imports from Russia have surged almost five times to $41.56 billion during the same period.
In the past year, refiners have been purchasing discounted Russian oil that has been avoided by the West due to President Vladimir Putin’s invasion of Ukraine. This has resulted in a surge in demand for the oil.
In April, India’s import of Russian crude oil surged to a new high of 1.68 million barrels per day, marking a six fold increase from the previous year, as reported by Vortexa Ltd, a data intelligence company.
In the wake of sanctions on Russian banks and a prohibition on transactions through the SWIFT messaging system, the Kremlin reportedly urged India to engage in trade using national currencies.
Plans for a rupee-ruble mechanism for oil imports were abandoned due to the volatility in the ruble soon after the war began. Despite pressure from the United States to reduce ties with Moscow following the invasion of Ukraine, India has remained steadfast in its stance.
According to Alexander Knobel, who is the director of the Institute of International Economics and Finance of the Ministry of Economic Development, the trade imbalance in Russia could result in a significant amount of frozen funds, potentially reaching tens of billions of dollars. India’s historically high aggregate trade deficit is exacerbating the situation, limiting the potential for clearing settlements with third countries.
India’s defense supplies have hit a roadblock due to the absence of a payment mechanism that doesn’t breach US sanctions, despite Russia being the country’s primary source of military hardware and weapons.
For over a year, India has been facing a payment predicament of more than $2 billion for weapons, as they have been unable to settle the bill in dollars due to concerns about violating secondary sanctions. Meanwhile, Russia has been hesitant to accept rupees for their purchases, further complicating the issue.
Oil refiners have reportedly attempted to resolve payments for reduced-price crude by utilizing currencies such as the United Arab Emirates dirhams, rubles, and rupees. International restrictions may not apply to trades that are priced below the $60-a-barrel price cap established by the Group of Seven nations and their European Union partners.
In a move to ensure the smooth flow of crude oil, lenders have initiated the opening of special vostro accounts at Russian banks such as Sberbank PJSC and VTB Bank PJSC. These accounts are aimed at facilitating overseas trade in rupees.
