The Rupee-Rouble mechanism being considered would involve Indian importers paying for goods to the accounts of Russian banks in India, who in turn would make the payment in roubles to the Russian exporters. However, since India’s imports outweigh its exports, the only way Russian banks can get rid of their piled up rupees is if India exports more. This opens up an opportunity for Indian manufacturers of agricultural machinery, medicine, furniture, and bathroom fittings, among other goods, who are looking for new markets.
“The exporter community is definitely looking at opportunities that are going to come [along] the way,” said Ajai Sahai, Director General and Chief Executive of the Federation of Indian Export Organisation.
Furthermore, this could pave the way for cheaper oil imports to meet India’s energy demands. India imports 86 percent of its oil requirements, and the prospect of cheaper supplies from Russia would no doubt help New Delhi manage its finances better.
“India gets only a tiny 2 percent from Russia, it can ramp up those purchases, and reportedly has already started to do that given Russia’s offer to sell at a discounted rate and bear the cost of transportation and insurance,” says Nandan Unnikrishnan, a distinguished fellow at the Observer Research Foundation (ORF).
However, Indian banks are averse to backing trade with Russia even on goods that are allowed under the sanctions. To circumvent these issues, the Federation of Indian Export Organisation has submitted a proposal to India’s Ministry of Commerce suggesting a rupee-rouble mechanism as well as a rupee-based trade mechanism where the contract is made in the local currency, the rupee, and the other party bears the exchange rate risk.
While the trade mechanism currently being discussed dates back three decades when India and the then Soviet Union agreed to transact in domestic currencies, experts warn that there are challenges ahead. The biggest stumbling block will be how to decide upon a rate of exchange against the Russian rouble that has been so volatile since the beginning of the war. It is also not viable to peg the rouble and the rupee even against a third currency for trade. Furthermore, the trade deficit will still be largely skewed towards Indian imports from Russia, especially with oil imports going up.
However, if this mechanism picks up, it could open a window for Indian exporters to ramp up sales to Russia. As Nandan Unnikrishnan said, “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.”
For now, trade importers and exporters continue to do business with Russia in dollar terms. Experts say that the mechanism may be looked at as a contingency plan to trigger if sanctions on Russia were to become more stringent. However, at this point, the risks of actively pursuing deeper bilateral trade with Russia could mean geopolitical ramifications for India.