India-Russia trade is reaching the peak of its potential. Within 9 months of this financial year, bilateral trade has increased by more than 200 per cent in YoY terms. Apart from strengthening bilateral relations, it has also set the tone for Rupee-Rouble trade.
India-Russia trade in Rupee-Rouble
Russia’s VTB bank has launched a mechanism to receive direct payment in Rupees. VTB is the second largest bank of Russia and the Russian government has a major stake in it. With the new system, Russian businesses will be able to transact with Indian companies in Rupee. It has eliminated the need for including Dollar and Euro in bilateral trade.
The move is a promising one since India-Russia trade within the first 9 months of this financial year clocked $27 billion. It is easily expected to cross $30 billion at the end of this year. The numbers surged because India drastically increased its imports of coal, oil and fertilisers from Russia. Due to this, India has a trade deficit with Russia, since more than 90 per cent of bilateral trade is dominated by Russian exports to India.
India has raised this issue and Russians have been positive in their approach to India’s concerns. The bonhomie is another good sign for Rupee-Rouble trade.
Boost to de-Dollarisation of currency system
Bilateral trade in local currencies is a joint vision of both countries. Even before the war, they had taken serious efforts to drive it. Before 2019, we used to settle more than 50 per cent of India-Russia trade in Dollars, but in 2021, 53.4 per cent of Indian payments to Russia was made in Rouble while Dollar’s share came down to 38.3 per cent. Russia had agreed to receive payment of $5.2-$5.6 billion in Rupee for delivery of the S-400 Triumf air defence system.
But it is not only Russia. Vostro accounts with respect to Sri Lanka and Mauritius have already been opened. Moreover, India is currently in talks with at least 35 countries for bilateral trade in local currencies. These include key trading partners like UAE and Saudi Arabia.
If bilateral payment settlements in local currencies gain traction, it will be a big boost to the prospects of BRICS currencies as well. Currently, the GDP of this group comprises 23 per cent of Global economy. 18 per cent of global trade is dominated by this group. With increasing trade ties between India-Russia, Russia-China and Saudi Arabia keen to join the group, the de-Dollarisation of this group will set a big precedent for other groups and countries.
Also read: The Rouble-Rupee combo – An effective solution to the menace of petrodollar
Only a beginning though
Despite these trends, a word of caution is needed. Until and unless Indian products do not dominate the international market like that of Chinese, the move will fall flat on its face. For that Indian manufacturing and services will have to rise up to occasion. Otherwise, India will end up emptying its Rupee reserve to accommodate foreign imports.
Rupee-Rouble trade is an excellent beginning, but it is only a beginning.
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