JAIPUR – India is considering a rupee-ruble trade agreement with Russia, a proposal from Moscow that will put New Delhi on a confrontation course with the West but one that could help to buffer the Indian economy against gathering global headwinds including spiking oil prices. 

India is keen to continue its bilateral trade with Russia despite strong pressure from the US and EU to get in line with its sanctions regime. India relies heavily on Russia for its arms and sees the prospect of importing cheaper oil at a time prices have spiked since the Ukraine invasion.

Indian trade body officials say the bilateral payment arrangement could be implemented as early as next week, though India’s central bank and finance ministry have so far avoided commenting officially on the matter.

India’s leading economic daily, Economic Times, reported that Russian central bank officials are expected to meet next week with their Reserve Bank of India (RBI) counterparts to discuss the creation of a regulatory framework that will help sustain bilateral trade and banking operations in the face of Western sanctions imposed against Moscow’s war on Ukraine.

Local reports quoting anonymous Indian finance ministry officials suggest the modalities of rupee-ruble trade have not yet been worked out in detail but one possibility could be, as per a report in the Business Standard newspaper, “swapping of the rupee by Russian bank for renminbi from a Chinese bank branch in India.”

Renminbi, unlike rupees, can be used by Russians. Meanwhile, Chinese banks can use the rupees to buy dollars, as it does not face any sanctions, the report said.

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Other reports have suggested the plan could involve rupee-ruble-denominated payments through Russia’s SPFS messaging system, an alternative to the more widely used SWIFT system that seven Russian banks are now punitively barred from using.

A CNBC report said that a simpler method may be adopted in which a Russian bank will only need to open an account in an Indian bank and an Indian bank will have to set up an account in Russia through which Indian exporters will get paid in the local currency rather than dollars or euros for their exports to Russia.

In this case, New Delhi and Moscow will have to agree on the exchange value and also have a notional value of equivalence, most likely in dollars or euros, to which the value of the Indian and Russian currencies will be pegged.  

The ruble is trading at about 85 to the dollar, roughly where it was before Russia started its invasion a month ago. The Russian currency had fallen as low as 150 to the dollar on March 7 on the news the Biden administration would ban US imports of Russian fuel but has bounced back with Moscow’s hiking of interest rates to 20% and imposition of capital controls.

Russia also wants India to plug into its Unified Payments Interface with their MIR payments system for seamless use of cards issued by Indian and Russian banks after Visa Inc. and Mastercard Inc. suspended operations, a Bloomberg report indicated quoting an Indian government source. 

Michael Kugelman, South Asia senior associate at The Wilson Center, a Washington-based think tank, told Asia Times, “India’s decision to seek non-dollar-based trade arrangements with Russia may rankle some in Washington, but it’s not at all surprising and very much in line with past Indian policy.”

“New Delhi has a special relationship with Moscow that entails a longstanding friendship. This gives India an incentive to find ways to keep working with Russia even while taking care not to run afoul of sanctions imposed by the US, an increasingly close partner for India,” Kugelman said.

He believes that a rupee-ruble trade arrangement is one possible way out of the diplomatic bind in which India now finds itself, as it looks to balance relations with both Moscow and Washington.

Kugelman also noted India has a strong reliance on Russian arms, at a moment when it faces two-pronged security challenges from both Pakistan and China. And it has a strong desire for cheap Russian oil at a moment when global prices are rapidly rising.

“In effect, India’s immediate security and economic interests alike give it a powerful incentive to work out a rupee-ruble trade arrangement with Moscow,” he said.

Brahma Chellaney, an eminent strategic thinker, author, commentator, echoed those views in a recent tweet saying, “India’s neutrality on the Russia-NATO standoff over Ukraine has drawn more attention than Israel’s neutrality. Likewise, while Europe still relies on Russian energy, a possible Indian oil deal with Moscow is drawing attention, though, as [White House spokesperson] Psaki signals, it won’t violate sanctions.”

Russia-India trade during April 2020-March 2021 amounted to US$8.1 billion, according to official Indian trade figures. Broken down, India exported $2.6 billion to Russia while importing $5.48 billion.

Enhancing economic and trade relations was a key bilateral priority before the Ukraine war, with both sides stating their intent to increase bilateral trade to $30 billion and bilateral investment to $50 billion by 2025. India’s exports to Russia presently constitute mainly agriculture, marine products and pharmacy products while imports from Russia are mainly crude oil.

Meanwhile, US and European commentators and experts have commenced flaying India for helping Russia to dodge sanctions and are baying for the US to impose sanctions on New Delhi.

Trish Regan, the award-winning publisher of TrishIntel.com, wrote in a recent strongly-worded tweet, “If INDIA buys Russian crude oil, INDIA should expect to be sanctioned by the United States. And, believe me, that won’t work out so well for India’s economy. Right now: you’re with the US or you’re against us. Simple.”

Jamie Jenkins, a UK-based current affairs commentator, wrote in a similar tweet, “India looks to bail out Russia with discount crude oil purchase. India another country we give foreign aid to. If we are serious about sanctions then the aid budget needs looking at too.”

His tweet came after reports appeared that India may buy crude at a discounted price from Russia under the currency swap arrangement.