After months of negotiations failed to convince Moscow to keep rupees in its coffers, two Indian government officials with direct knowledge of the matter said that India and Russia have suspended efforts to settle bilateral trade in rupees.
This would be a major setback for Indian importers of cheap oil and coal from Russia who were hoping for a permanent rupee payment mechanism to help lower currency conversion costs. With a high trade gap in favour of Russia, Moscow believes it will end up with an annual rupee surplus of more than US$40 billion (S$53 billion) if such a mechanism is worked out and feels rupee accumulation is “not desirable”.
India started exploring a rupee settlement mechanism with Russia soon after the invasion of Ukraine in February last year. But there has been no reported deal done in rupees.
The rupee is not fully convertible. India’s share of global exports of goods is also just about 2 per cent and these factors reduce the necessity for other countries to hold rupees.
Most trade is in United States dollars, but an increasing amount is being carried out in other currencies like the United Arab Emirates dirham. Despite the two sides having spoken about facilitating trade in local currencies, the guidelines were not formalised.
Russia is not comfortable holding rupees and wants to be paid in Chinese Yuan or other currencies.
