New Delhi aims to enhance bilateral trade with Moscow to $100 billion by 2030 to curb its rising oil import bill and reduce
dependence on the US dollar. However, since the Ukraine war in 2022, trade dynamics have become skewed, with Russia
now being India’s top oil supplier but Indian exports to Russia lagging, leading to a $57 billion trade deficit out of a $66
billion bilateral trade in FY24. This imbalance may force India to use the Chinese yuan, undermining efforts to
internationalize the rupee.
Internationalisation of the Rupee
About
Definition: Internationalisation of the rupee involves increasing the use of the INR in cross-border transactions and
enhancing its acceptance, liquidity, and usability in global markets.
Steps Taken:
July 2022: The RBI provided an additional arrangement for invoicing, payment, and settlement of exports/imports
in rupees.
December 2022: India saw its first settlement of foreign trade in rupees with Russia.
Banks of 19 Countries: Including the UK, New Zealand, Germany, Malaysia, Israel, and the UAE, have been
permitted to make settlements in rupees.
How Can India Internationalise the Rupee?
Economic Survey FY23: Highlights the need for increased use of the rupee for trade invoicing.
BIS Triennial Central Bank Survey 2022: The US dollar is dominant, making up 88% of global forex turnover, while the
rupee accounts for only 1.6%. Increasing the rupee’s turnover to 4% could position it as an international currency.
Widening Trade Gap with Russia and Benefits to Yuan
China’s Advantage: Amid Western sanctions, Chinese exports to Russia have grown faster than imports of Russian oil.
2023 Trade Data: Chinese shipments to Russia increased by 47% year-on-year to $111 billion, while imports grew
by 13% to $129 billion, leading to a record two-way trade of $240 billion.
Use of Local Currencies: 95% of China-Russia trade occurs in local currencies, with the yuan surpassing the US
dollar in the Russian stock market.
Impact on India: Russian oil exports now request payments from Indian refineries in yuan, limiting the use of the
rupee.
Challenges in Exports to Russia
Reluctance of Private Banks: Due to fears of Western sanctions, many banks with significant business interests in the
West are hesitant to engage in trade with Russia.
Need for Increased Indian Exports: Strengthening industrial cooperation and increasing exports to Russia were
emphasized in the joint statement following Prime Minister Modi’s visit.
Difficulties in Rupee Settlement Mechanism:
Absence of SOP: Exporters initially struggled to use the mechanism due to the absence of a Standard Operating
Procedure for banks.
Currency Volatility: The ruble and rupee’s volatility, compared to the more stable yuan, complicates trade in
domestic currencies.
Way Forward
Eliminating Trade Barriers: During PM Modi’s visit, India and Russia agreed to eliminate trade barriers and initiate
negotiations for a trade deal with the Russia-led Eurasian Economic Union (EEU).
Industrial Cooperation: Cooperation in manufacturing sectors such as transport engineering, metallurgy, and chemicals,
and implementing joint projects in priority areas.
Reciprocal Trade Flows: Expanding reciprocal trade flows of industrial products to increase their share in bilateral trade.
Migration and Mobility Partnership: Discussions on a migration and mobility partnership agreement between the two
countries.
Conclusion
Addressing the trade gap with Russia and promoting the internationalisation of the rupee are crucial for India. While
challenges remain, especially with private banks’ reluctance and currency volatility, strategic cooperation and negotiations
can help mitigate these issues and enhance bilateral trade and economic ties.