India-Russia trade

India-Russia ties have withstood myriad challenges posed by the Ukraine war, which is nearing its first anniversary. Notwithstanding the sanctions imposed by the US and its allies, bilateral trade reached a record $30 billion in 2022, including a 36-fold rise in the supply of discounted Russian oil to India. Russia is now the largest supplier of crude to India, having displaced Iraq. National Security Adviser Ajit Doval’s meetings with his Russian counterpart Nikolai Patrushev and President Vladimir Putin in Moscow were aimed at strengthening the India-Russia special and privileged strategic partnership. This partnership envisages enhanced levels of cooperation in various areas, be it defence, trade, economy or science and technology.

The current geopolitical ferment calls for both nations to think out of the box. While the BrahMos missile system and the fifth-generation fighter aircraft are good examples of military technical cooperation between Moscow and Delhi, there is a long way to go on the economic front. Late last year, Russia became the first country to switch to trade settlements in Indian rupee, months after the RBI unveiled this mechanism to attract foreign investors. However, a major stumbling block is that Indian banks are wary of using a rupee-rouble payment system for trade settlement because of concerns about ‘secondary restrictions’ from the US. Russian Ambassador Denis Alipov has rightly suggested that India and Russia ‘need to invent something new’ to bolster their economic relations and trade, considering that curbs on Moscow’s use of SWIFT for worldwide inter-bank transactions are likely to persist.

Russia is keen on opening an India-based financial institution with Russian ownership so as to enable Indian firms to use Russian central bank’s payment system as an alternative to SWIFT. Plugging the gaps in the rupee trade mechanism can help India boost the volume of its exports to Russia, including chemicals, machinery, vehicles and food products. With Moscow being Delhi’s ever-reliable partner, the RBI needs to take concrete steps to allay the fears of Indian banks regarding rupee-rouble trade settlement. Confidence-building measures are a must to make India-Russia trade soar to greater heights amid the prolonged conflict in eastern Europe.