According to government and financial sources, India is looking into setting up a rupee payment mechanism for commerce with Russia in order to lessen the impact of Western sanctions placed on Russia following its invasion of Ukraine.
As sanctions deepen, Indian officials are concerned that essential fertilizer supplies from Russia may be stopped, putting India’s huge farm economy at risk. India has called for an end to the violence in Ukraine but has refrained from condemning Russia, with which it has long had political and security relations.
On Thursday, Russia launched a land, air, and sea invasion of Ukraine, the worst attack on a European country since World War II, forcing tens of thousands of people to abandon their homes.
Ukraine President seeks more sanctions on Russia
On Friday, Russian soldiers accelerated their approach, prompting Ukrainian President Volodymyr Zelenskiy to appeal to the international community for stronger action, claiming that the sanctions imposed so far were insufficient. According to a banking source familiar with the conversations, the goal was to get Russian banks and firms to open accounts with a few state-run banks in India for trade settlement.
India looking to draft rupee payment mechanism to soften Russian curbs
“This is a proactive measure,” the source said, “assuming the crisis grows and a raft of penalties are in place.” “In this scenario, we wouldn’t be able to complete the transaction in dollars, thus an arrangement to set up a rupee account has been presented and is being explored.”
According to the source, funds in such accounts serve as a guarantee of payment for commerce between two countries, while the parties barter items to make up the difference.
According to the banking and government source, a similar mechanism in which part of the payment with Russia is in foreign currency and the remainder is through local rupee accounts is also being considered.
Such methods are frequently used by governments to protect themselves from the impact of sanctions, and India employed one with Iran after it was sanctioned by the West for its nuclear weapons program, according to the source. The initiative began in 2012 and was successful for several years.
According to an Indian government official, the talks with Russia are still in the early stages, and formal conversations have not yet begun between the two countries. On Thursday, EU leaders agreed to impose further economic penalties against Russia, joining the US and the UK in attempting to punish Russian President Vladimir Putin and his supporters for the attack. Individual banks and state-owned organizations are targeted by the sanctions, which obstruct Russia’s ability to transact in major currencies. Rupee Rupee
A request for comment from the Finance Ministry was not immediately returned. Because the discussions are confidential, none of the sources wanted to be identified. In 2021, Russia’s exports to India totaled $6.9 billion, primarily mineral oils, fertilizers, and raw diamonds, while India’s exports to Russia totaled $3.33 billion, primarily pharmaceutical products, tea, and coffee.
Nearly a third of India’s total potash imports come from Russia and Belarus. A senior industry executive told Reuters that replacing them would be impossible amid a record high in fertilizer prices. On Friday, New Delhi will meet with fertilizer industry executives to discuss ways to secure supply from Russia and Belarus, according to a senior fertilizer industry official who did not want to be identified.