INDIA RUSSIA TRADE

• The two countries intend to increase bilateral investment to US$50 billion and bilateral trade to US$30 billion by 2025.
• Bilateral trade during FY 2020 amounted to USD 8.1 billion.
• From 2013 to 2016 there was a major decline in the trade percentage between the two countries. However, it increased from 2017 onwards and a constant increase was noticed in 2018 and 2019 as well.

3. Increasing Dependency on Russian Oil Imports

• India's oil imports have shifted significantly towards Russia, surpassing traditional suppliers such as Saudi Arabia and Iraq.
• Russia's geopolitical situation, including Western sanctions following the military operation in Ukraine, has prompted Moscow to offer steep discounts on its crude oil, finding a ready market in India.
• India, unlike Western countries, has chosen not to impose formal sanctions on Russia, leading to a nearly 13-fold increase in crude oil imports from Russia in 2022-23, reaching over $31 billion.

4. Payment Challenges and Geopolitical Ramifications

• India faces difficulties in paying for Russian oil due to breaching the $60 per barrel price cap set by the US and European nations, as Russia offers lower discounts on its crude.
• Using currencies like the Chinese yuan for payments raises geopolitical concerns due to strained ties with Beijing.
• Western sanctions have limited Russia's access to the global secure interbank system (SWIFT), making it challenging for Indian exporters to receive payments for goods already shipped to Russia.

5. The Rupee-Rouble Mechanism and Trade Deficit Concerns

• Negotiations between India and Russia to reactivate the rupee-rouble trade arrangement, an alternative payment mechanism, have faced obstacles.
• Concerns over the rouble's convertibility and volatility, along with India's ballooning trade deficit, have hindered the implementation of the rupee-rouble payment mechanism.
• India's trade deficit with Russia reached $43 billion in 2022-23, leading to significant amounts of Indian rupees in Russian banks that cannot be utilized for Russia's war efforts.

6. De-Dollarisation Efforts and Alternative Payment Methods

• The US sanctions have prompted countries to explore de-dollarisation, replacing the US dollar as the global reserve currency.
• India has released a roadmap for the internationalization of the Indian rupee to enhance its acceptance globally.
• Indian refiners have settled non-dollar payments for Russian oil using currencies like the Chinese yuan and the UAE dirham.

7. Future Considerations and Potential Solutions

• Using the Chinese yuan for payments raises geopolitical concerns, given the strained India-China relations.
• Possible solutions to counter the trade deficit with Russia include seeking investments in Indian energy projects or government bonds from Russia.
• India's efforts to internationalize the Indian rupee may contribute to broader acceptance, but the value and acceptability of any currency depend on its purchasing power.