Govt Plans To Set Up Rupee Trade Accounts With Russia To Soften Sanctions Blow, Says Report

Indian officials are particularly concerned about vital supplies of fertiliser from Russia, as it could be disrupted if sanctions intensify, threatening the country's vast farm sector

New Delhi: The central government is exploring ways to launch a new payment mechanism system, transacting in rupee, for trade with Russia, sources have told Reuters.

New Delhi wants to soften the blows of sanctions imposed on Russia by the Western world because of its military operations in Ukraine. On the backdrop of the Russia-Ukraine conflict, Indian officials are particularly concerned about vital supplies of fertiliser from Russia, as it could be disrupted if sanctions intensify, threatening India’s vast farm sector.

India has called for an end to violence in Ukraine, however, refrained from outright condemnation of Russia, with which it has long-standing political and security ties.

According to the officials, the plan was to get Russian banks and companies to open accounts with a few state-run banks in India for trade settlement, quoting a banking source Reuters reported.

“This is a proactive move assuming that the conflict escalates and there could be a slew of sanctions in place,” the source said. “In this case we would not be able to settle the transaction in dollars and so an arrangement has been proposed to set up a rupee account, which is being considered.”

The source said that funds in such accounts act as a guarantee of payment for trade exchanged between two countries, while the parties barter commodities from each other to offset the amount.

A similar deal, in which part of the settlement with Russia is in foreign currency and rest is through local rupee accounts, was also being explored, the source mentioned.

Such mechanisms are often used by countries to shield themselves from the blow of sanctions and India also used it with Iran after it came under Western sanctions for its nuclear weapons programme, the source added.

The system was introduced in 2012 and worked well for several years.

The talks with Russia were still at an early stage and formal discussions had not yet begun between the two sides, an Indian government official said.

Russia’s exports to India stood at $6.9 billion in 2021, mainly mineral oils, fertilisers, and rough diamonds, while India exported $3.33 billion worth of goods to Russia in 2021, mainly pharmaceutical products, tea, and coffee.