(Bloomberg) — India’s fondness for cheap Russian oil is widening its trade deficit with Moscow and consequent its heavily advertised rupee trade scheme.
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The gap between their exports and imports is growing, and that makes the local currency payment mechanism useless, people familiar with the matter said, requesting anonymity because of the discussions. is private. They said no payments were made because Russian banks did not want excess rupees to pile up.
Commerce Department data shows that New Delhi’s imports from Russia in the eight months to November were nearly 16 times more than shipments to the country. Russia’s war with Ukraine, which has dragged on US-led sanctions, has given rise to the idea of a rupee trade as India ramps up its purchases of cheap oil from Moscow to curb rising import bills in the coming months. context of high commodity prices. This mechanism acts as a template for making similar arrangements with other countries such as Mauritius and Sri Lanka.
Slow progress in the rupee trade with Russia could put further pressure on the local currency, which has seen the biggest slide against the dollar among emerging Asian currencies in the past 12 months. India is betting on the internationalization of the rupee to reduce demand for dollars and make its economy less vulnerable to global shocks after a current account deficit, a broad measure in trade in goods and services, rose to a record in July-September.
Officials from the two countries met last month to discuss ways to boost exports to Russia in areas such as electronics so that the rupee trade mechanism can be put back on track as the Traders consider other workarounds.
The plan to allow foreign trade to be settled in rupees was announced by the Reserve Bank of India in July. Seven months later, the mechanism was largely limited to payments for imports of defense equipment, the people said.
Paying in rubles is also a challenge because there is no fixed exchange rate for the currency, said an executive at Bharat Petroleum Corp. pegged to the dollar. India’s largest company by market value Reliance Industries Ltd. and BPCL are among Indian refiners using the dirham to pay for some shipments of Russian crude as they navigate Western sanctions.
Spokespersons for India’s foreign and trade ministries did not immediately comment on the matter.
Russia is currently the largest supplier of crude oil to India, surpassing Iraq and Saudi Arabia. In December, the South Asian country bought 1.2 million barrels of crude oil per day from Russia – 33 times more than a year earlier.
While crude oil continues to dominate bilateral trade, imports of commodities such as sunflower oil and fertilizers have also skyrocketed over the past few months. As a result, India’s imports from Russia increased by more than 400% in the eight months to November from a year earlier, while exports fell 14%, indicating a government effort to improve shipments. went abroad without much success.
“As far as we know, there has been no transaction in Indian rupees to date,” said Ajay Sahai, general manager and chief executive officer of the Federation of Indian Export Organizations.
–With support from Debjit Chakraborty.
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