The Indian Government is yet to decide on formalising the much-debated Rupee-Ruble arrangement even though Moscow has offered to make payments for all Indian exports in Indian currency.

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The Reserve Bank of India (RBI) was unable to decide on a formal swap ratio for the Rupee-Ruble trade mainly due to the volatility of the Ruble after the Ukraine-Russia war. This is said to be the main reason behind the delay.

As per the mechanism worked out, both the countries will agree to hold a specified amount in the local currencies in the two accounts. For instance, if the amount agreed is $100 million, the Indian bank’s account in Russia will have Ruble worth the same amount, while the Russian banks in India will hold rupee worth the amount.

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Both the countries will have to agree on the exchange value and also have a notional value of equivalence, most likely in dollar or euro, to which the value of the Indian and Russian currencies will be pegged.

Here lies the problem. A month ago, when the war started, the Russian currency was trading at 139 for a dollar, but it managed to stage a smart recovery and trading at 84 Rubles for a dollar on Thursday.

Though this recovery seems to be a conundrum for many, Moscow was able to pull out the Ruble from the depths mainly due to holes in sanctions imposed by the West. Russia’s natural gas imports to European countries helped it to make this possible. No wonder Ruble has emerged as the top-performing currency in March.

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At present, New Delhi is making Rupee payments for the import of sensitive defence and heavy engineering equipment and limited Indian exports of agricultural commodities going to Russia via Georgia.

Russia has even offered oil to India at a discounted price of $35 per barrel, which is much below the present rate of $102.59 per barrel. Indian oil marketing companies continue to buy oil from Russia at the discounted price.

Indian companies were unable to make payments to Russian entities after Moscow shut out from SWIFT. India is looking at the Rupee-Ruble swap as an alternative mechanism to deal with the crisis.

A formal Rupee-Ruble swap mechanism was implemented in the 1990s, but it was put on hold due to the sharp depreciation of the Ruble,

Moreover, India is trying to balance its relationship with the US, while dealing with Moscow. New Delhi was able to play off its purchase of Russian discounted crude as a strategic energy transaction, it might not be able to do the same if it increases its trade with Russia by exporting items to the country.

Earlier, A Sakthivel, president of the Federation of Indian Export Organisations (FIEO), told CNBC that the trade mechanism is likely to be unveiled soon. The FIEO is the apex trade promotion organisation set up by the government and represents the interests of 200,000 exporters.

Four to five PSU banks would be selected to engage in the trade, and the banks will be decided based on the consultations between the Reserve Bank of India governor, the finance minister and the banks, he added.

(Edited by : Sudarsanan Mani, Abhishek Jha)

First Published:Apr 7, 2022 3:25 PM IST