India’s exports to Russia have come under a shadow following economic and banking sanctions imposed by the US, the UK and the EU on the country for invading Ukraine.
The Commerce and Industry Ministry is examining suggestions made by exporters, including the possibility of third country payments and allowing deals in rouble, but unavailability of insurance cover and rising freight rates are adding to the list of woes, according to sources.
“Commerce Ministry officials met exporters on Monday to take stock of the sanctions and their fall-out and also discuss various options to get around the problem of payments,” a source tracking the matter told BusinessLine.
Russia, which is India’s 25th largest trading partner, imports considerable volumes of tea, pharmaceuticals, mobile phones and other electronics, machinery, iron and steel and apparels from India. India’s total exports to Russia were valued at $2.6 billion in 2020-21, while imports were at $5.4 billion.
Since most Russian banks have been blocked by the EU and the US from the SWIFT international payment system, it would be difficult for Russian companies to make financial transactions, pointed out Anupam Shah, an exporter of engineering products.
“Some Russian importers, who have entities in other countries such as Turkey, Hong Kong or UAE, have suggested that India should allow third country payments. But this could lead to payment delays and other issues might crop us such as need for advance declaration at time of shipment. Commerce Ministry officials will meet officials in the Finance Ministry, the RBI and banks to discuss if some relaxations could be given,” the source said.
The other option of allowing deals to be carried out in rouble instead of the US dollar, could enable smooth payments, but would be a complicated exercise as rouble is not a freely convertible currency and determining the exchange rate could be an issue. “Especially with the value of the rouble falling steeply one has to see how frequently the exchange rate would need to be revised,” the source added.
While items like food, pharmaceutical and energy are excluded from the sanctions, the situation is challenging for these sectors. The withdrawal of ECGC cover on exports to Russia is unfair and risk cover should be restored immediately, said Sujit Patra from the Indian Tea Association.
“Shipment cost has gone up multiple times. The Centre should consider assistance to exporters to defray some cost. Banks need to provide more pre and post shipment working capital with higher interest subvention,” Patra added.
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