- India and Russia settle non-oil trade in rupees: India and Russia have initiated a trade arrangement to settle non-oil transactions in Indian rupees, aiming to strengthen economic ties and reduce reliance on the US dollar.
- UCO Bank facilitates the transition: UCO Bank, a state-run Indian lender, has played a crucial role in facilitating these rupee-based transactions, with Gazprombank being the first foreign bank to open a dedicated rupee vostro account.
- Growing trade and diversification: India's annual trade with Russia has tripled, reaching $44.4 billion, while Russia has become India's top oil supplier. Both countries seek to diversify trade relationships and reduce dependency on the US dollar.
UCO Bank Facilitating the Transition
In a significant development, India and Russia have embarked on a new trade arrangement involving the settlement of non-oil trade transactions in Indian rupees. This initiative, which commenced at the beginning of this year, aims to enhance bilateral economic ties and reduce reliance on the US dollar. UCO Bank, a state-run Indian lender, has played a pivotal role in facilitating these transactions.
India's Move to Internationalize the Rupee
Building upon the Reserve Bank of India's mechanism introduced last year to settle foreign trade in rupees, India has taken a significant step towards internationalizing its national currency. This move aligns with India's broader strategy to expand the use of the rupee in global trade and promote its standing as a major economic power.
Russia's Push for Diversification and Reduced Dollar Dependency
Motivated by a desire to diversify its trade relationships and decrease its reliance on the US dollar, Russia has expressed a keen interest in conducting more trade using national currencies and those of friendly nations. Denis Manturov, Russia's Deputy Prime Minister, emphasized this objective in April. The pursuit of alternative payment arrangements stems from the Western sanctions imposed on Russia due to its involvement in the conflict in Ukraine.
Gazprombank Takes the Lead
So far, Gazprombank, a Russian financial institution, has emerged as the pioneer in this new trade arrangement. It is the only foreign bank that has established a dedicated rupee vostro account with UCO Bank. However, UCO Bank's Chief Executive, Soma Shankara Prasad, revealed that they have received requests from other foreign banks, including some from Russia, to open special rupee vostro accounts. These requests demonstrate a growing interest in participating in this emerging trade ecosystem.
Early Successes and Prospects
Since January, approximately 19 to 20 transactions have taken place in rupees. Notably, these transactions have been primarily Indian exports to Russia. Indian exporters are being paid in rupees from the payments received in Gazprombank's rupee vostro account. A few transactions involving Indian importers have also been completed, such as the purchase of pollution measuring equipment. Prasad expressed satisfaction with the nascent two-way trade in rupees, highlighting the potential for growth and the possibility of extending the mechanism to include oil trade once it is fully established and tested.
Drawing Parallels with the Iranian Trade Model
The current arrangement bears similarities to India's trade settlement model with Iran. In that case, India utilized rupee payments to Tehran for oil imports to supply non-sanctioned goods to Iran. UCO Bank played a crucial role in facilitating these trade settlements as well. The success of this model with Iran likely influenced India's decision to adopt a similar approach with Russia.
Positive Trade Outlook and Increasing Bilateral Cooperation
India's annual trade with Russia has seen a remarkable surge, more than tripling from $13.1 billion to $44.4 billion in the fiscal year ending on March 31. Moreover, Russia surpassed Iraq as India's top oil supplier in 2022/23, indicating the strengthening economic ties between the two nations. As both countries explore new avenues for cooperation and diversify their trade relationships, the settlement of non-oil trade in rupees represents a significant milestone in their economic partnership.
Future Prospects and Responses Awaited
Despite the early successes of this new trade mechanism, responses from Gazprombank and Russia's Trade and Industry Ministry are eagerly awaited. Their perspectives will shed light on Russia's commitment to diversify its trade relationships and reduce its dependency on the US dollar. With the potential for further collaboration and expansion, both