According to Reuters, India and Russia have put a halt to their negotiations of settling bilateral trade in rupees. Despite months of discussions, Moscow wasn’t persuaded to keep the currency in its reserves; which was confirmed by two Indian officials and a source with direct insight on the issue.
The lack of a permanent rupee payment mechanism would be a major blow to Indian importers who source oil and coal from Russia, as it would lead to higher currency conversion costs. This could be hugely detrimental for those seeking low-cost imports.
Russia currently has a large trade surplus, which could result in them amassing an annual rupee surplus of more than $40 billion if a certain agreement is implemented. According to an anonymous Indian government official, the accrual of the rupee is ‘not desirable’.
India’s finance ministry, the Reserve Bank of India and Russian authorities have yet to comment on the matter as they were not available for immediate remarks.
India’s rupee is not completely convertible, and its share of global exports is only 2%, which makes it less necessary for other nations to hold rupees. Thus, these factors have further reduced their usage in the global market.
After the crisis in Ukraine broke out, India started researching the possibility of settling trade with Russia using rupees instead of dollars. However, thus far no settlement has been reported. Although the majority of commercial deals are still done in dollars, an ever-growing number are conducted through other currencies such as the UAE dirham.
Talks have been ongoing between the two sides about using local currencies for trading activities, although no formal guidelines have been set up yet. Reuters also highlighted that Russia is not willing to accept payments in rupees and prefers the Chinese yuan or other currencies.