India is looking to strengthen its rupee-ruble arrangement to ensure seamless trade with Russia amid disruptions caused by Western sanctions following the Ukraine war.
Indian banks rely on The Society for Worldwide Interbank Financial Telecommunication, or SWIFT, to settle international transactions related to trade and remittances. SWIFT allows secure and quick communication among global lenders for cross-border payments. However, seven Russian banks have been now excluded from the messaging system.
Indian traders have naturally raised concerns. India and Russia had bilateral trade of $8.1 billion in the fiscal year ended March 2021, with exports to Russia at $2.6 billion and imports at $5.5 billion.
The rupee-ruble arrangement is not new
It was in 2014 that India and Russia agreed to make payments through the rupee-ruble trade after India faced a US sanctions threat over a defence deal with Russia.
But, there’s a problem. The ruble is not fully convertible, so not easily traded in forex markets with little-to-no restrictions. This results in low trade volumes for the currency pair, currency analysts said. Since the war last week, the ruble has plunged to its record low against the US dollar.
Currently, the Russian ruble is cheaper than the rupee. It means India needs to pay less for its imports from Russia.
The two countries will now have to consider alternatives like smaller Russian banks, local currency trade, and lenders in other countries. Russian companies can also open a rupee trading account with Indian banks, like the earlier arrangements with Iran.
Besides, India’s flagship payments system Unified Payments Interface could also be potentially linked to Russia’s own System for Transfer of Financial Messages.