India could decide on rupee-ruble deal with Russia soon?

As global sanctions continue to bite the Russian economy, the Indian government is considering options to facilitate trade with Moscow.

Bloomberg reported a decision on a rupee-ruble arrangement could come as early as this week. “The government is discussing how trade can be settled in rubles and rupees as Indian exporters are awaiting payments of about $500 million that have been stuck after the sanctions on Russian banks,” Bloomberg reported. The RBI and lenders such as State Bank of India and UCO Bank are being consulted in the government's deliberations.

“Under the proposed mechanism, ruble could be deposited into an Indian bank after converting it into rupee and vice versa. There are some concerns, however, on how to peg the currencies, and also on ways to balance the trade as India is a net importer of Russian goods, which include defense equipment,” Bloomberg reported.

A rupee-ruble arrangement will allow Indian exporters to be paid in rupees for exports to Russia, instead of dollars or euros. Such an arrangement would require a Russian bank to open an account in an Indian bank, while an Indian bank opens an account in Russia.

The business outlet reported India wants a floating exchange rate with Russia given the ruble's decline since the war in Ukraine began. “New Delhi is preparing a list of items it can export to Russia to narrow the about-$5 billion trade deficit it runs currently, while considering making payments for crude oil in rupee,” Bloomberg reported.

Livemint quoted an official as saying India was considering increasing oil purchases from Russia, being offered at discounted prices. “But we need to resolve a few issues to make that happen. One is we need to figure out the availability of shipping vessels. The other pertains to the high insurance premiums for imports from Russia... High premiums will erode all the benefits of the discounted price. Also, the refining capability and cost will need to be assessed as we buy a different blend,” the official told Livemint.

Russian oil-related exports to India are valued at close to $1 billion, which is a marginal part of India's oil imports.