Recent efforts by India and Russia to settle bilateral trade in rupees have been put on hold after months of talks failed to persuade Russia to keep rupees in its possession. In this article, we discuss more on this development. This is an important topic for the IAS exam international relations and economy segments.
Why did India & Russia Halt Talks to Settle Trade in Rupees?
- The report claims that Russia preferred to be paid in Chinese yuan or another currency since it did not feel secure retaining rupees.
- Trade Gap: Russia believes that rupee accumulation is “not desirable,” and if such a mechanism is developed, it would end up with an annual rupee surplus of over $40 billion.
- Rupee convertibility: The rupee is only partially convertible, and India only accounts for about 2% of all global merchandise exports. These elements reduce the requirement that other countries hold the currency.
Impact on Indian Businesses:Â
- Indian businesses that buy inexpensive coal and oil from Russia and were hoping for a long-term rupee payment mechanism to help cut currency conversion expenses will suffer as a result.
- Rely on other currencies: The countries are forced to settle transactions in other currencies, which may fluctuate and come with conversion fees that raise the cost of conducting business.
- Commercial opportunities may be restricted as a result of the currency settlement since it may limit future commerce and other economic opportunities between the two nations.
- The restriction might prevent the strengthening of strategic ties outside of the defence and energy sectors. The rupee settlement may have given Indian banks and financial organisations the chance to reach Russian consumers.
How Does India Carry Out Business Dealings with Russia?
- Since Russia invaded Ukraine in February 2022, India has bought a lot more goods from Russia.
- Prior to April 2023, the trade climbed from $10.6 billion to $51.3 billion.
- Discounted oil was largely to blame for the rise in imports. However, compared to the same period last year, Indian exports fell marginally, from $3.61 billion to $3.43 billion.
- Using different currencies, trade with Russia has persisted despite the sanctions and payment challenges; while some payments are made in dirham and other currencies, the majority of transactions are still handled in dollars.
- Since there is no restriction on utilising SWIFT to conduct business with other nations, Indian businesses are also using third-party nations to settle some trade payments with Russia.
- The main method of funding international trade is through the Society for Worldwide Interbank Financial Telecommunication (SWIFT), a secure messaging platform that permits rapid cross-border payments.
- The payments for their own commerce with Russia were then compensated by these third-party nations.
Effects of the stopped India-Russia trade negotiations in rupees
For Indian companies that import inexpensive coal and oil from Russia and were looking forward to a rupee payment system to assist reduce currency translation expenses, this would be a significant blow.
India, Russia Halt Talks to Settle Trade in Rupees [UPSC Current Affairs]:- Download PDF Here
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