India-Russia Explore A Rupee-Rouble Payment Scheme to Bypass War

Indian authorities are actively considering dedicated payment mechanisms for trade with Russia to enable existing trade obligations in the wake of sanctions imposed on the Kremlin, a move that will also pave the way for cheaper oil imports to meet the country’s energy demands.

In the past month, as sanctions have been imposed on Russia, the scope of a payment mechanism in local currencies has expanded from being a means to sustain ongoing trade to possibilities of deeper engagement, including increasing bilateral trade.

For the rupee-rouble mechanism to be implemented, Indian importers would pay for goods to the accounts of Russian banks in India and they in turn would make the payment in roubles to the Russian exporters. But since India’s imports outweigh its exports, the only way the Russian banks can get rid of their piled up rupees is if India exports more, experts say, opening up an opportunity for manufacturers of agricultural machinery, medicine, furniture, and bathroom fittings, among other goods, who are looking for new markets.

“We need to be aware of where Russia would want to look at import substitution,” said Nandan Unnikrishnan, distinguished fellow at the Observer Research Foundation (ORF). Some of those exports will come from India’s medium and small industries who can also look at setting up units in Russia, he added. “They don’t have a lot of experience with SMEs [Small Medium Enterprises] and we have a huge amount of experience there that we could share practically and on the ground.”