After Russia’s offer to increase its oil and petroleum export to India at a discounted rate, the Indian government is now looking for new payment options to purchase Russia’s crude oil.
The Indian government is keen on exploring the rupee-ruble trade mechanism which will allow Indian exporters to be paid in rupees for their exports to Russia instead of dollars or euros. In such an arrangement, the first party is required to open an account in the second party’s national bank and vice-versa. Thus, when an Indian bank will open an account in Russia, a Russian bank will be required to do the same in an Indian bank. Such a trade mechanism has once been attempted with Russia earlier on a small scale for products like tea.
The two nations may also explore a floating rate arrangement, where the currency price of a country is placed by the forex market depending upon demand-supply relative to other currencies. To increase oil purchase, the government of India is working to resolve lateral issues like ships availability, insurance cover for imports.
“Rupee-ruble trade is very much on the cards. We are working on a currency arrangement to facilitate trade, especially as we also plan to increase oil purchase from Russia,” said an Indian official.
“We can look at a floating exchange rate system. A third currency can be taken as a point of reference, maybe yuan,” said the official. The arrangement would not need the exchange rate to be pinched down to any currency because the ruble has been in depreciation, having fallen to 39% against the dollar this year.
The local currency trade mechanism is also very much crucial as India has many defense equipment and nuclear products exchanged with Russia, all the while having export trade of its pharmaceuticals, engineering, and agriculture products in the Russian markets.
Indian ministries of Finance, Petroleum, and Natural Gas have remained mute until the press release. Under the arrangement, money will be deposited in an Indian bank account after converting the Russian currency at a specified rate into Indian rupees.
Indian officials were found saying there is no finalizing of the Russian and Indian banks, involved in the exchange. Currently, India is importing only 2% of its oil need from Russia, which is far less than India’s demand for oil, i.e., 85%. The Indian government is taking up the Russian oil offer but still has a long way to figure out lateral requirements for the oil exchange and proper payment options.
