India-Russia Trade: Is Indian Rupee Worthless For Cross-Border Transactions?

[Riaz Haq]

What good is a currency in global trade if it can not be used to buy products and services from other nations that a country needs?  The answer to this question came when Russia said it has accumulated billions of rupees in Indian banks which it can not use. “This is a problem”,  Russian Foreign Minister Sergei Lavrov told reporters in India’s Western state of Goa on the sidelines of the Shanghai Cooperation Organization meeting.  “We need to use this money. But for this, these rupees must be transferred in another currency, and this is being discussed now”.  Russia has decided it won't take any more Indian rupees. Moscow has rejected New Delhi's proposal for the Kremlin to invest rupees from oil and military equipment payments back into Indian capital markets so the currency doesn't pile up.

Global Export Map 2023. Source: World Population Review

Only the currencies issued by the governments of the world's largest exporters are useful for buying products and services on the world markets. China, United States, Germany, Japan and the United Kingdom are the world's top 5 exporting nations as of 2020. This makes Chinese Yuan, US Dollar, European Euro, Japanese Yen and British Pound the most important international trade currencies. Of these currencies, only the Chinese Yuan is not impacted by the western sanctions on trade with Russia. Russia wants India to convert Indian Rupees to Chinese Yuan to pay for energy and military equipment imports from Russia. 

Yuan vs Dollar in Chinese Cross-Border Trade. Source: Bloomberg

The share of the Chinese Yuan in international trade has been increasing since the US imposed sanctions on the use of the US dollar in trade with Russia. Earlier this year, the Chinese Yuan eclipsed the US dollar as the most used currency for Chinese cross-border transactions, according to Market Insider. The Yuan's use in cross-border payments and receipts rose to 48.4% at the end of March while the dollar's share slid to 46.7%, according to a Reuters calculation of data from China's State Administration of Foreign Exchange. The yuan's use in global trade finance remains low, though it has shown steady increases. Data from SWIFT showed that the Chinese yuan's share of global currency transactions for trade finance rose to 4.5% in March, while the US dollar accounted for 83.71%, according to Reuters. 

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[Riaz Haq]

In the first 11 months of the 2022-23 financial year, Indian imports from Russia were worth nearly $41.5 billion (€38 billion), while exports amounted to just $2.8 billion, according to data from the Ministry of Commerce and Industry.

https://www.dw.com/en/russias-rupee-problem-risks-harming-trade-tie...


This has left Russian oil companies and banks with billions of rupees in their Indian bank accounts — a pile of cash they are struggling to use.

"I don't think this situation can continue for long," Nandan Unnikrishnan, distinguished fellow and Russia expert at the Observer Research Foundation (ORF) in New Delhi, told DW. "If both sides fail to resolve the problem, it will impact purchases of not only oil but everything."

Russian Foreign Minister Sergei Lavrov also recently commented on the issue while attending a Shanghai Cooperation Organization meeting in the Indian state of Goa.

"We need to use this money. But for this, these rupees must be transferred in another currency, and this is being discussed now," he was quoted by news agency Bloomberg as saying.


The uncertainties over payment mechanisms have also hurt defense imports, Bloomberg reported. New Delhi and Moscow share longstanding political and security ties.

India is a major buyer of Russian weapons, although it has been attempting to diversify its sources of military equipment, increasingly turning to countries like the US and France in recent years.

Russia accounted for $8.5 billion of the $18.3 billion New Delhi has spent on weapons imports since 2017, according to data from the Stockholm International Peace Research Institute.

Both sides are also in talks to reach a free trade agreement.

The Indian government has so far refrained from explicitly criticizing Russia's war in Ukraine. New Delhi has abstained several times from voting on UN resolutions against Moscow. It has, however, called for a peaceful resolution of the conflict through dialogue.

The ramping up of trade ties, meanwhile, has been viewed with concern in Western capitals, as they fear it's undermining the stringent sanctions regime in place against Moscow.

Besides the Indian rupee, the UAE dirhams and the Chinese yuan are seen by some as potential options to settle trade between India and Russia.

"Russia wants a currency that it can use to buy goods that it requires for its economy… the question is identifying that currency," said Unnikrishnan. "Russians would be happy to use the yuan," he underlined, pointing to their bilateral trade worth hundreds of billions of dollars.

In 2022, Russia-China commerce hit a record high of $190 billion.

But Unnikrishnan noted that New Delhi would not be comfortable allowing trade settlement in the yuan, given the tense relations between India and China due to their border disputes.

The Reuters news agency also reported in March, citing Indian officials, that the Indian government had asked banks and businesses to avoid using the yuan to pay for Russian imports.

Another option is the use of UAE dirhams to pay for India's Russian imports but experts say this might not offer a viable long-term solution, due to the sensitivity of that currency to Western sanctions.

Unnikrishnan stressed that India and Russia could come up with alternative solutions, like productively investing the rupees into joint ventures that produce goods that are of use to Russia or could be exported to other parts of the world.

"There are multiple ways to deploy this money, and both sides just have to show the political will to reach that agreement," Unnikrishnan said.

[Riaz Haq]

Russia pleads with India for help avoiding financial black list, warning oil and weapons deals are at risk, report says

https://finance.yahoo.com/news/russia-pleads-india-help-avoiding-22...

Filip De Mott


Russia could become black listed by the Financial Action Task Force in June.

To avoid this, Moscow is pressuring India to help thwart the blacklisting effort, Bloomberg reported.

Russia has told India that key energy and weapons deals would be at risk.

Russia is asking for India's support to avoid getting on a black list that would further isolate Moscow from global finance, Bloomberg reported.

The pressure comes as the Financial Action Task Force — an intergovernmental group focused on combating money laundering and terrorist financing — prepares for a June meeting, during which members could implement restrictions on Russia.

Though its invasion of Ukraine had already made Russia the world's most heavily sanctioned country, an FATF blacklisting would put Moscow in the same category as North Korea, Iran, and Myanmar.

If Russia is added to the black list, FATF members, banks, investment firms, and payment-processors must perform additional due diligence and could even enact countermeasures, according to Bloomberg.

Because Russia was suspended from FATF in February, it's urging other countries like India to help thwart the blacklisting effort.

The Kremlin has warned India that defense, energy, and transportation deals between the two countries would be at risk under the designation.

They include weapons exports, cooperation between oil firms Rosneft and Nayara Energy Limited, and the development of a railway corridor. Russia is India's top arm supplier and has emerged as a major oil supplier in the last year.

Russia has also said that even being added on the FATF's "gray list" — a less severe measure — would still threaten deals.

Moscow believes that India has "special credibility" within the FATF that should be used, but has also turned to other governments for similar support, sources told Bloomberg. Meanwhile, Ukraine has championed the black listing, but is not a member itself.

Read the original article on Business Insider

[Riaz Haq]

#India Is Scrapping Rs 2,000 note. Critics call it ham-handed, saying it has shaken consumer confidence & damaged rupee. Others noted that while 2016 #demonetization helped gov't claw back nearly all of withdrawn bills, it didn't eliminate black money. https://www.nytimes.com/2023/05/31/business/india-2000-rs-rupee-not...

The move to retire 2,000-rupee notes, worth $24, has triggered bad memories of a similar campaign in 2016. It has also left some businesses short of change.

Indians have been filing into gas stations, jewelry stores, fruit stands and any other businesses that still accept soon-to-be-withdrawn 2,000-rupee notes, each worth about $24.

The race to spend India’s biggest bill has been on since its central bank announced this month that they would be removed from circulation by early fall.

India’s vast economy remains heavily reliant on cash, and many businesses have welcomed the surge in traffic, even if it has left them a bit short of change. Economists say retiring the big bill may help fight corruption, bring workers into the formal economy, improve tax collection and accelerate India’s push for digital payments.

But for some consumers, the move has dredged up unpleasant memories of 2016, when Prime Minister Narendra Modi’s sudden ban on large notes left them without enough cash for basic transactions. In an economy that is driven by rural and informal workers, some do not own bank accounts — or trust the government’s economic policies.

“It is better to buy gold or silver and keep it,” said Meenu Kevat, 32, a cleaner in New Delhi who does not have a bank account and hoards her cash earnings in a tin box. After the recent ban was announced, she said, it took her four days to cajole shopkeepers into converting 12 of her 2,000-rupee notes into smaller dominations.

“I don’t trust cash now the government can do anything it wants,” Ms. Kevat said, standing outside a grocery store in south Delhi. “It can cancel a note anytime, no matter how small or big.”

The fine print
In 2016, Mr. Modi’s government announced without warning that it was withdrawing India’s two largest denominations at the time — the 500- and 1,000-rupee bills — to expose and penalize people who held huge amounts of money that could not be accounted for.

After that sudden demonetization, A.T.M.s were overrun, and some retail businesses came to a standstill because customers were hoarding the little cash they had. And because the withdrawn notes amounted to about 86 percent of the cash in circulation at the time, the government decided to introduce the 2,000-rupee bill as a “remonetization” measure to ease the currency crunch.

So far, the move to withdraw the 2,000-rupee bills from circulation is causing far less disruption. That may be because they account for less than 11 percent of the currency in circulation. India’s 1.4 billion citizens also have until Sept. 30 to either spend the bills or exchange them at banks. (The bills will remain legal tender after that, but many Indians are taking the deadline seriously, because they worry that government policy could change.)

In the long term, removing the 2,000-rupee bills will probably help with a gradual, positive move toward formalization and transparency, said Phyllis Papadavid​, an economist who studied the 2016 demonetization program. More workers should be able to formally register and claim benefits, for example, and there will be higher barriers to tax evasion.

“I can’t think of any aspect of an economy that is worse off by digitalization or formalization, because, basically, you have better usage and management of information, and accountability,” said Ms. Papadavid, the director of research and advisory at Asia House, a research outfit in London.

In the short term, though, the cash rush has caused a few headaches.

[Riaz Haq]

#Russia doesn't know what to do with the $1 billion in #Indian rupees it is amassing in #India each month. #trade #currency #oil #Modi #BJP

https://www.businessinsider.com/dedollarization-russia-dollar-yuan-...

Russia's amassing $1 billion worth of Indian rupees each month that it's struggling to use.

India has been buying Russian oil using rupees as Moscow has been shut out of the USD-denominated global payments system.

But Russia now has problems using the rupees and repatriating the currency.

[Riaz Haq]

The China Factor in India’s Blooming Relationship With Russia


https://thediplomat.com/2024/07/the-china-factor-in-indias-blooming...

India’s growing relationship with Russia impacts China, but Russia gains more than India does.

Indian Prime Minister Narendra Modi’s visit to Russia, and the promise of greater collaboration and trade, was a crude reminder of India’s significance – not just to Russia and President Vladimir Putin, who welcomed Modi warmly, but as a balance to China, and a Western touchstone in the region. Modi is crucially aware of India’s relatively unique leveraging power.

The implications of these agreements are huge. They strike at China’s ambitions in the region and Russia’s strategic autonomy. Ultimately, India is a net-gainer from this. The country stands to draw Russia away from Beijing, something that Moscow is no doubt keen to do. India is also unlikely to be challenged by its Western partners. Ultimately, while India and Russia’s economic agreements might appear smaller than those with other partners, the real significance lies in the impact on the Sino-Russian partnership and China’s wider goals.

The origins of India’s foreign policy lie in Modi’s commitment to autonomy. Modi, despite the setback of comparatively poor election results this year, has been able to shape India’s foreign policy to fit his great nationalist mission. He has taken a similar line to China in regard to Russia’s war in Ukraine: That is, India has called for peaceful resolutions while increasing economic cooperation with Russia.

India is the second largest importer of Russian oil behind China. New Delhi has made money by refining Russian oil and exporting it internationally. Modi’s Bharatiya Janata Party (BJP) has also retained political capital because savings on cheaper Russian oil have kept fuel prices in India low. In this way, Modi has been able to make political gains out of the war. India assists Russia’s circumvention of international sanctions by allowing Moscow to pay with its own national currency for its trade with India. Meanwhile, Modi has supposedly been able to negotiate the return of a small number of Indian nationals who were recruited as soldiers in Russia; others have been killed in Ukraine.

The purpose of Modi’s so-called multi-aligned foreign policy is that he can make gains from a desperate and isolated Russia and, in doing so, become an important strategic partner for the West and a vex for China.

But Modi has made sure India is also incredibly well integrated with the West along economic and security grounds. According to the European Commission, the EU is India’s largest trading partner, accounting for 12.2 percent of India’s total trade (China and the U.S. account for 10 percent each). According to India’s Department of Commerce, the EU is one India’s largest sources of foreign direct investment, valued at nearly $108 billion by December 2023. But this is less than half of EU foreign investment in China and Brazil, which are both way over $200 billion. The EU and Indian trading relationship is ultimately in India’s favor, however slightly. According to the Indian embassy in Brussels, the trade deficit was valued at around 16.4 billion euros (around $18 billion).

The EU is not alone in turning to India to counterbalance an economic dependency on China. The U.S. Trade Representative stated that, in the year between 2021 and 2022, U.S. FDI in India increased 15 to 1. Trade totaled nearly $200 billion in 2022, with India exporting far more than the United States did.

[Riaz Haq]

The China Factor in India’s Blooming Relationship With Russia


https://thediplomat.com/2024/07/the-china-factor-in-indias-blooming...


A lot of India’s success economically stems from its status as a liberal democracy in an authoritarian region. The impact of de-risking and decoupling with authoritarian states like China and Russia has been a positive phenomenon for India. For example, as of 2023, Apple produced one in seven of its phones in India. According to The Economist, Indian tech manufacturing has grown by around $70 billion since 2016. This is partly driven by surging domestic demand, but also has a lot to do with concerns about over-dependence on Chinese manufacturing. It’s also a symptom of broader steps to consolidate economic relations with politically aligned states, which India has endorsed.

India’s economic relations with Russia are not the same as its ties with the West, but they are still important. Indeed, India has incredibly diverse partners across different industries. As Dr. Jagannath Panda wrote for the United States Institute for Peace, prior to the July meeting between the two heads of state, for India, Russia is a useful provider of cheap crude oil, automotive parts, and nuclear power infrastructure. With the West, India is far more focused on advancing specialist industries in its drive toward self-reliance and economic progress. This includes increasingly critical semiconductor production with which India has signed up for greater cooperation with the EU. Similarly, despite India’s close relationship with Russian defense production, its cooperation with the U.S. is more attractive for developing its own systems to counter an aggressive China.

However, India’s balancing of its relationships has not always worked. India suffered a blow in February 2024 when one of its own companies was included in a raft of sanctions due to its close relationship with Russia.

When it comes down to it, India has made gains because of its relationship with Russia, but Moscow is not going to be the avenue by which Modi manifests his economic and political vision. India needs the West for that. Even for something as vital as arms, India has been able to diversify. Russia was historically well integrated into the training and supplying of the Indian Army, at one point accounting for close to all of Indian arm imports. But India has since diversified its arms importers.

India is not without alternatives for rich friends and allies – Russia is. The common concern for them both is China.

Russia cannot replace China with India, and the recent summit was not an attempt to do so. For example, the $100 billion bilateral trade target Modi and Putin set for 2030 would be less than half the value of Sino-Russian trade in 2023 alone. What India has done for Russia is provide some breathing room.

China is overtaking Russia in regions where there was once a more amicable balance. This impacts Russia’s strategic autonomy, something which could be addressed by greater economic cooperation with India. In a joint statement, one significant feature of the agreed plans was not only the ministerial interaction, or the negotiation of free trade between the two states, but the allowance of the two countries to trade using their own currencies.

For trade with China, Russia has had little option but to use the yuan. Alexandra Prokopenko characterized this as the “yuanization” of the Russian economy, a trend that started before the war but has accelerated since. In December 2023, nearly a third of Russia’s foreign trade was settled in yuan, a trend that has increased despite sanctions. Russia and India’s agreement to settle trade using their national currencies can strengthen the ruble and reduce a dependence on China’s yuan for cross-border trade, something that both sides had previously suspended discussion on. This would negatively impact China’s concerted effort to offer the yuan as a significant challenger to the U.S. dollar.

[Riaz Haq]

The China Factor in India’s Blooming Relationship With Russia


https://thediplomat.com/2024/07/the-china-factor-in-indias-blooming...


None of this is explicitly anti-China, but Russia is taking clear steps to reduce its dependence on Beijing, economically, and politically.

India and China’s economic and territorial disputes cannot be solved by Russia; Russia no longer has that level of influence. The Modi-Putin agreements, while not comparable to the scale of Sino-Russian trade, or India’s trade with the West, drive home two critical points. The first is the success of Modi’s multiple alliances. India has been able to diversify its partners, suppliers, and buyers effectively, addressing Modi’s domestic goals.

The second point is just how much of this does not align with China’s hopes. Moscow’s disquiet regarding its dependence on Beijing is real. Looking ahead, while Modi may gain a foot in the door of the Kremlin, from which he could address Russia’s war, this is not likely. The true impact of this growing relationship is on Russia’s strategic autonomy from China.

Although not unaffected by the mood and money from Beijing, Russia has shown an ability and a desire to work with a state – India – that is not on China’s side. This might be driven by desperation, but there are inevitably strategic intentions too. Russia has committed to economic and political integration with India. This will harm China’s broader ambitions such as the marginalization of the dollar and the use of the yuan in the region.

Similarly, India will now appear as a closer partner to Russia, meaning the West might try more concertedly to work through New Delhi to reach Moscow, rather than Beijing. This also implies that the West will not penalize India for its involvement with Russia. That would be counterproductive, as the West gains from having a closely aligned and integrated partner with access to the Kremlin.

Modi’s trip represents a bubbling under the surface of the Sino-Russian partnership. As time goes on, and issues between India and China arise, it will be important to look to Russia and how Moscow responds.

There is no telling what might change between Moscow and Beijing as India steps evermore into the orbit of their partnership. However, one thing is apparent: it will likely not be what Beijing wants.

[Riaz Haq]

Exclusive: Russia's Sberbank says India business booming despite Western sanctions | Reuters

https://www.reuters.com/business/finance/russias-sberbank-says-indi...

MOSCOW, Sept 3 (Reuters) - Russia's trade with India is booming and bilateral payments are proceeding smoothly without the glitches that have been hampering trade with other countries, Anatoly Popov, deputy CEO of Russia's largest lender, Sberbank, told Reuters.
Sberbank handles payments for up to 70% of all Russian exports to India. Russia's trade with India nearly doubled to $65 billion in 2023, with the country becoming a major importer of Russian oil after Western sanctions imposed in 2022 over a conflict in Ukraine.

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Sberbank is under Western sanctions and therefore cannot make transactions in U.S. dollars and euros or use the SWIFT system for international transfers. However, Popov said the bank has not experienced any problems in India.
"Sberbank is a full participant in all Indian payment and interbank systems. There are no restrictions on its operations," Popov said. India has not joined any anti-Russian sanctions and maintains friendly relations with Russia, a fellow member of the BRICS group of emerging economies.

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"The problem has been solved, there is no rupee surplus any longer," Popov said, emphasising that to achieve balanced trade, India still needs to increase its exports to Russia 10-fold. An Indian source told Reuters on Aug. 14 that the rupees surplus has dropped to a "few million dollars".
He said that India, the world's fifth largest economy, had almost everything Russian importers were looking for.

"India is a self-sufficient, vast economy capable of meeting its own needs. Therefore, any goods that Russia previously imported can be purchased in India," Popov said.
Sberbank is also developing its offering of hedging instruments, which already includes forwards and options, as well as other products such as rupee-denominated loans for Russian companies at rates significantly lower than in Russia.
He thanked Indian regulators for the opportunity to operate through rupee-denominated "vostro" accounts, which domestic banks can hold on behalf of foreign banks in India, facilitating their operations.
Popov said that the current mechanism of converting roubles and rupees was functioning well and did not require any third-party currencies for settlement. However, he emphasized that stock exchange trade in rupees would increase transparency.

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Indian reliance on Chinese imports is challenge for U.S. trade strategy - The Washington Post

https://www.washingtonpost.com/world/2024/09/02/india-china-manufac...

NEW DELHI — American businesses looking to reduce their reliance on China have increasingly been eyeing India in the past few years as a new manufacturing hub — and as a hedge against potential disruptions in Chinese supply chains caused by rising geopolitical tensions or another pandemic.

But as India has amped up its production of goods like smartphones, solar panels and medicine, the Indian economy itself has become even more dependent on Chinese imports, in particular for the components that go into these products, according to trade figures and economic analysts.

This dynamic serves as a reality check for U.S. policymakers, who have been urgently promoting efforts to diversify supply chains away from Chinese factories and “de-risk” the commercial relationship with China.

“Unless China stops being the third party from where components come in and we just assemble, that de-risking is not going to happen for any country coming in and producing in India,” said Sriparna Pathak, an associate professor at Jindal University focusing on India-China relations.

[Riaz Haq]

The most recent data means almost a fifth of the sensitive technology that goes into Russia’s military-industrial complex got there via India, the officials said.

A key driver of the shift is the vast stock of rupees Russia has accumulated from oil sales, according to the officials.

India’s role as a transshipment point has made it a focus for European Union and US sanctions agencies in recent months. Officials from those nations have visited several times in efforts to get authorities to crack down on shipments, and several Indian firms have come under western sanctions.


https://www.livemint.com/economy/india-is-now-russia-s-no-2-supplie...

India has surged to become the second-biggest supplier of restricted critical technologies to Russia, US and European officials said, highlighting the challenge in efforts to choke off exports fueling President Vladimir Putin’s war machine.

Indian exports of restricted items such as microchips, circuits and machine tools surpassed $60 million in both April and May, about double from earlier months this year, and leaped to $95 million in July, according to the officials, who asked not to be identified discussing private assessments. India is exceeded only by China.

Even more frustrating to Ukraine’s allies, some of them said, is that envoys who raise the issue have received little response from their Indian counterparts. India’s Ministry of External Affairs declined to comment when asked about the trend.

The most recent data means almost a fifth of the sensitive technology that goes into Russia’s military-industrial complex got there via India, the officials said.


The fresh data underscores the difficulty the US and its allies have faced in crimping Russia’s ability to fight in Ukraine two and a half years since Putin’s forces invaded. Exports of most such dual-use items directly to Russia are banned, so the country has taken to buying them from third countries — sometimes from unwitting subsidiaries of western firms or networks of intermediaries.

A State Department spokesperson said Friday that the department would reiterate rising concerns with Indian government officials as well as companies.

The US and European Union have focused most of their efforts on a list of technologies found in Russian weapons or are needed to build them.

As allies work to curb some of these routes — Turkey and the United Arab Emirates have been two big transshipment points — new hubs have emerged. They include India, Malaysia and Thailand, according to the people.

India’s role in the the shipment of such goods has presented a further challenge because US and EU policymakers want to nurture partnerships with Prime Minister Narendra Modi’s government even as he cultivates ties with Putin. India has also emerged as a top buyer of Russian oil despite allied efforts to restrict sales.

A key driver of the shift is the vast stock of rupees Russia has accumulated from such oil sales, according to the officials.
India’s role as a transshipment point has made it a focus for European Union and US sanctions agencies in recent months. Officials from those nations have visited several times in efforts to get authorities to crack down on shipments, and several Indian firms have come under western sanctions.

In July, US Deputy Treasury Secretary Wally Adeyemo wrote a letter to senior officials at the Confederation of Indian Industry warning of the sanctions risks faced by Indian companies and banks that do business with Russia’s military industrial base, according to a copy of the letter obtained by Bloomberg News.