Ascent of yuan in India’s indirect trade with Russia

Russia’s trade with China hit a record after its invasion of Ukraine, and the Western sanctions that followed redirected much of its energy exports to Asia. While India is yet to set up a smooth payment mechanism with Russia, about 95% of Russia-China trade is settled in rubles and yuan, according to the Russian government.

Russian exporters trading with India through Singapore and Dubai prefer the Chinese currency with greater global acceptance, one of the two people said on condition of anonymity.

The move comes as a setback for India’s attempts to boost the use of rupee in international trade. A payment mechanism India has planned with Russia has failed to take off, as the trade deficit between the two swelled sevenfold in the last fiscal year alone to cross $40 billion.

“Both India and Russia want to firm up rupee-ruble trade. However, much more needs to be done (on this front)," the second person added.

On 15 January, Mint first reported that Russian buyers are offering payments to Indian exporters in yuan, even as the Reserve Bank of India (RBI)-backed rupee settlement mechanism was off to a slow start.

Recently, Indian exporters told the Parliamentary Standing Committee on Commerce that the lack of understanding and awareness among banks is causing difficulties for exporters. Banks often refuse to provide a Bank Realization Certificate (BRC) when the payment is received in rupees, they said. BRC is a document exporters require to claim benefits, including duty drawback.

“Business is still happening with Russia. It’s not the case in Iran, where no other (currency) option was there, so large exports have happened through rupee payments. Here, other options are continuing. Also, the trade will take time to pick up using a new mechanism unless they are forced," said Ajay Sahai, director-general and chief executive of the Federation of Indian Export Organisations.

Spokespeople for the commerce and finance ministries didn’t respond to emailed queries.

Russian exporters, including state-backed entities, currently hold about $8 billion in Vostro accounts set up to facilitate trade in Indian rupees, Mint reported on 18 October. While some Russian money is invested in Indian securities, a big chunk remains in these accounts due to a lack of investment opportunities in India for Russians and the continued volatility in exchange rates.

Though Russian exporters want to repatriate their money, they are unable to do so under current circumstances, said the second person mentioned above.

Indian importers typically pay for Russian oil in currencies like dirhams (UAE currency) and dollars, but according to a recent Bloomberg report, India has rejected demands of Russian oil companies for payment in yuan amid tensions with China.

ravi.dutt@livemint.com