India, Russia renew talks to boost local currency trade local – sources

Indian and Russian central banks are in renewed discussions to establish a mechanism for expanding local currency trade, aiming to address payment issues that have arisen from a surge in bilateral trade since the start of the Ukraine war in 2022.

The talks involve setting a reference rate between the Indian rupee and the Russian rouble, rather than valuing the currencies against the US dollar, according to an Indian government source. Indian central bank officials are currently in Russia to discuss payment settlements for their bilateral trade, a second source from the banking industry confirmed.

Russia has become India’s second-largest exporter, with exports rising to $23.78 billion in the first four months of the fiscal year, up 20.3 per cent from the previous year. Indian imports from Russia, primarily crude oil, surged to $61.43 billion in 2023/24, a 33 per cent increase from the prior fiscal year.

To establish a reference rate between the two local currencies, they need to be traded on an exchange for an extended period, which remains under discussion. “If we have a direct exchange rate, we do not have to peg it to any currency, including dollar. But that would require rupee, and rouble to be traded in the same currency exchange platform for a much larger quantity and for a longer duration,” the source explained.

Both central banks need to finalise the modalities for determining the exchange rate.

The Russian central bank declined to comment, and the Reserve Bank of India did not immediately respond to a request for comment.

Additionally, officials are examining the issue of accumulated rupees in Indian bank accounts by Russian companies due to the trade imbalance. The government source noted that this surplus has decreased to a “few million dollars” from previous multi-billion dollar estimates, as it has been used to settle payments to Indian exporters. India’s exports to Russia increased over 35 per cent year-on-year to $4.3 billion in 2023/24.

Attribution: Reuters

Subediting: Y.Yasser