Mechanics and Benefits of Rupee-Rouble Payments

What are Rupee-Rouble Payments?

Rupee-rouble payments refer to trade transactions between India and Russia that are settled directly in their respective national currencies, the Indian rupee (INR) and the Russian rouble (RUB). This arrangement eliminates the need for an intermediary currency like the US dollar or the euro, facilitating smoother trade and reducing dependency on foreign currencies that may be subject to sanctions or financial controls.

How Do Rupee-Rouble Payments Work?

• Establishing Accounts: Businesses in India and Russia open bank accounts in each other’s currencies. For instance, an Indian exporter may hold a rouble account with a Russian bank, while a Russian importer maintains a rupee account with an Indian bank.
• Pricing in National Currencies: Goods and services exchanged are priced in either rupees or roubles, eliminating the need for conversion into an intermediary currency. This reduces exchange rate risks and transaction costs.
• Direct Settlement: Payments are settled directly in national currencies. For example, an Indian exporter selling machinery to Russia receives payment in rupees, while a Russian importer buying chemicals pays in roubles.

Example 1: Indian Exporter Selling Machinery to Russia

• An Indian company sells machinery worth 10 million rupees to a Russian company.
• The Russian company agrees to pay in rupees.
• The Russian company deposits 10 million rupees into the Indian company’s rupee account with an Indian bank.
• The Indian company receives the payment directly in rupees without conversion.

Example 2: Russian Exporter Selling Oil to India

• A Russian oil company sells oil worth 50 million roubles to an Indian company.
• The Indian company agrees to pay in roubles.
• The Indian company deposits 50 million roubles into the Russian company’s rouble account with a Russian bank.
• The Russian company receives the payment directly in roubles without conversion.

Benefits of Rupee-Rouble Payments

• Reduced Dependency on Foreign Currencies: This arrangement minimizes reliance on currencies like the US dollar, making transactions less vulnerable to fluctuations and sanctions.
• Lower Transaction Costs: Eliminating the need for currency conversion allows businesses to save on transaction fees and exchange rate losses.
• Enhanced Trade Relations: Direct currency settlements can strengthen bilateral trade ties and economic cooperation between India and Russia.
• Mitigated Sanction Risks: Using national currencies helps bypass restrictions imposed by sanctions on foreign currencies.

Rupee-rouble payments streamline trade between India and Russia, facilitating direct currency transactions and reducing costs. This arrangement fosters stronger economic relations between the two nations.

India and Russia Doubling Rupee-Rouble Payments

The doubling of rupee-rouble payments signifies a significant increase in trade transactions settled directly in their national currencies compared to the previous year. Businesses are increasingly opting for their currencies over international ones like the US dollar or euro.

Reasons for Using National Currencies in Trade

• Sanctions: Western sanctions have hindered Russian access to US dollars or euros.
• Trust: Confidence in the Indian rupee is growing among Russian businesses.
• Economic Strategy: Both nations aim to reduce dependency on Western financial systems.

Impact of Sanctions on India-Russia Trade

Sanctions have prompted Russia to seek alternative trading partners and currencies. As Western companies exited the Russian market, India and China have filled the resulting void by expanding their trade and investments.

Growth Opportunities for Indian Exports to Russia

• Auto and aviation components
• Chemicals
• Microelectronics
• Consumer electronics
• Machinery
• Medical devices
• Agricultural products

Strategic Goals for Bilateral Trade

Prime Minister Narendra Modi and President Vladimir Putin have set a target of $100 billion in trade by 2030. Recent diplomatic visits aim to enhance economic cooperation and achieve this goal.

China's Role in the Current Trade Scenario

China has capitalized on the absence of Western companies by significantly increasing its trade with Russia, reaching a balanced bilateral trade worth $240 billion. Indian businesses are encouraged to swiftly expand their presence in Russia to counter China's growing dominance.

Importance of Rupee Convertibility

The convertibility of the rupee in Russia facilitates smoother transactions, encouraging more Indian businesses to engage in trade without concerns about currency exchange issues.

Overall Outlook for India-Russia Trade Relations

The outlook for India-Russia trade relations is positive, with substantial growth in rupee-rouble transactions. Increased interest from businesses in both countries presents opportunities for Indian companies to fully leverage favorable conditions and address China's influence in the Russian market.

Frequently Asked Questions (FAQs)

Q1. What are Rupee-Rouble payments?
Answer: Rupee-Rouble payments are trade transactions between India and Russia settled directly in their national currencies, eliminating the need for intermediary currencies and reducing dependency on foreign currencies.

Q2. How do Rupee-Rouble payments benefit trade?
Answer: They reduce transaction costs, minimize reliance on foreign currencies, enhance trade relations, and mitigate risks associated with sanctions.