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With the West continuing to impose fresh economic sanctions against Russia for its war on Ukraine, a team of representatives from Russia’s Central Bank and senior government officials will be in New Delhi next month to meet Indian officials and finalise a rupee-rouble payment mechanism to work around the banking restrictions, a source said.
“The Ministry of External Affairs is likely to lead the talks with the Russian delegation next month. Officials from RBI and Finance Ministry will also participate. An alternative payment mechanism has to be in place to continue doing meaningful trade with Russia. Hopefully, the situation on the global sanctions against Russia will be clearer by then. All sanctions will be studied carefully to work around them,” the source tracking the matter told BusinessLine.
External Affairs Minister S Jaishankar, in a recent reply in the Lok Sabha, indicated that India would look at ways to continue its trade with Russia. “Our effort today is to stabilise economic transactions between India and Russia because this is very important for us. Russia is a very important partner in a variety of areas and I think all honourable members (of Parliament) understand that,” Jaishankar said.
India is a major purchaser of Russian armsand hopes to buy more oil being offered to it at a discount. While India’s exports to Russia in FY2021-22 have been pegged at $3.17 billion as opposed to imports worth $8.68 billion, Indian exporters see opportunities as the West slaps sanctions against the country.
Messaging system
Prior to the proposed meeting with Russian officials next month, India will scrutinise the proposal made by the country to use Russia’s messaging system ‘Structured Financial Messaging Solution’ (SPFS), as a replacement for the SWIFT system, to support a rupee-rouble payment mechanism.
The US and the EU cut off seven major Russian banks from the SWIFT system following its attack on Ukraine in February, which restricted their access to financial markets across the world. The US has also banned import of Russian oil, LNG and coal, but the EU still allows it. Western countries have imposed many other sanctions on Russian financial institutions, state-owned enterprises, and oligarchs.
Payment mechanism
“India will have to examine if the SPFS could work for it and whether Indian banks that could be safely involved in the process. Banks with even the smallest exposure to the US or the EU are shy of transacting with Russia as possible Western sanctions may affect their overall business,” the source said.
While a rupee-rouble payment mechanism, once established, may not invite sanctions as it is a bilateral mechanism for payment against exchange of goods and services, India wants to weigh all possible risks, the source added.
Fixing the exchange value for carrying out rupee-rouble transactions also has to be sorted out. “Russia will not be interested in using dollar or euro as reference because of sharp devaluation of rouble against these currencies. One has to see if other convertible currencies, such as the yuan, could be used as a reference for arriving at a conversion value between rupee and rouble,” the source said.
Because of the volatility in the value of rouble, a decision may also be required on the frequency of fixing the conversion rate, the source added.
US Deputy National Security Adviser Daleep Singh, in his recent visit to India, had said in an interaction with reporters that there could be consequences for countries that attempt to circumvent the embargoes against Russia imposed following the invasion of Ukraine.
Russia’s Foreign Minister Sergei Lavrov, who, too, visited India earlier this month said that Russia will be ready to supply any goods which India wanted to buy. “I have no doubt that a way would be (found) to bypass the artificial impediments which illegal unilateral sanctions by the West create. This relates also to the area of military-technical cooperation,” he said to reporters.
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