India’s trade payments with Russia are facing a crisis due to currency issues and the global trend of de-dollarisation. As India increasingly imports oil from Russia, it has become challenging for the country to make payments. The issue arises from breaching the oil price cap imposed by the U.S. and European nations, as well as the choice of currency for transactions. The traditional dollar-dependent transactions have been complicated by geopolitical ramifications, especially amid strained ties with China, leading India to explore alternative currencies.
India’s imports of crude oil from Russia have surged in recent years, making Russia the largest supplier of oil to India. However, Western sanctions imposed on Russia have limited the use of global banking systems like SWIFT for financial transactions, creating hurdles in payment processing. This has impacted Indian exporters who are awaiting payments from Russian buyers.
Efforts were made to revive the rupee-rouble trade arrangement as an alternative payment mechanism. However, the convertibility and volatility of the rupee and rouble, as well as the unforeseen surge in trade, have hindered the implementation of this mechanism. The trade deficit between India and Russia has also increased significantly, creating an imbalance in the flow of currencies between the two countries.
In response to the challenges posed by the dominance of the U.S. dollar in global transactions, India has released a roadmap for the internationalisation of the Indian rupee. De-dollarisation, or the shift away from the dollar as the global reserve currency, has gained momentum as countries seek to reduce their dependence on the U.S. dollar and its associated geopolitical influence. However, the success of de-dollarisation depends on the purchasing power and acceptability of the alternative currencies.
To mitigate the payment crisis, Indian refiners have explored non-dollar payments, such as using the Chinese yuan and the UAE dirham for transactions with Russia. However, geopolitical considerations and strained relations with China pose challenges in adopting the yuan as a primary currency for trade payments.
As India grapples with the payment crisis and the trade deficit with Russia, potential solutions include attracting Russian investments in Indian energy projects or encouraging investments in government bonds to balance the deficit.
The resolution of the currency and payment issues between India and Russia will require careful consideration of geopolitical factors, economic strategies, and collaborative efforts to ensure smooth trade relations and payment mechanisms.
