India, Russia Suspend Rupee Settlement Negotiations, Claims Report. Russian Official Says 'No Change'

Commenting on media reports, a Russian official, however, dismisses the claim saying, "No change in bilateral developments, wishful thinking by Western news agencies"

India and Russia have suspended the negotiation of bilateral trade in rupees. Citing two government officials, Reuters reported that after months of negotiations India failed to convince Russia to keep rupees in its coffers. The report said that this would be a major setback for the Indian importers of cheap oil and coal from Russia. 

However, commenting on media reports, a Russian official said, "No change in bilateral developments, wishful thinking by Western news agencies," according to ANI. The Reuters report said that Russia views Rupee accumulation as "not desirable." 

An Indian government official told Reuters that Russia believes that it will end up with an annual rupee surplus of over $40 billion if a rupee settlement mechanism is established due to a high trade gap that favors Russia. 

The report notes that due to the rupee not being fully convertible and India's relatively small share of global exports (about 2 per cent), there is limited incentive for other countries to hold rupees.

India began exploring a rupee settlement mechanism with Russia shortly after the invasion of Ukraine in February of last year. However, most trade continues to be conducted in dollars. Some trade is being carried out in currencies other than the Dollar, such as the UAE Dirham.

Although India and Russia have discussed the possibility of facilitating trade in local currencies, no formal guidelines have been established.

A second Indian government official told Reuters that Russia is not comfortable holding rupees and wants to be paid in Chinese Yuan or other currencies.  "We don't want to push rupee settlement anymore, that mechanism is just not working. India has tried everything we could to try and make this work but it hasn't helped," a third source said. 

India's imports from Russia have increased from $10.6 billion to $51.3 billion since Russia's invasion of Ukraine in February of last year. Discounted oil has made up a significant portion of India's imports, surging twelve-fold during this period. Meanwhile, India's exports to Russia slightly declined from $3.61 billion to $3.43 billion, the report noted.

The sources told Reuters that trade with Russia has been continuing despite sanctions and payment issues.

"Right now we are making some payments in dirham and a few other currencies but the majority is still in dollars. Settlement is happening in different ways, third party countries are also being used," one of the government officials said.

"Third-parties are being used to settle trade with Russia. There is no ban on transacting with other countries over SWIFT. So payments are being made to a third country which route it or offset it for their trade with Russia," the other official said. On whether money was also being routed via China, the official said, "Yes, including China".