Bilateral payments with Russia unlikely to be impacted amid sanctions

Bilateral payments with Russia may not be impacted even as the US and other western countries have imposed economic sanctions on Moscow in the wake of the attack on Ukraine.

India and Russia bilateral payments are made in Indian rupee. For both imports and exports, payments are made or received in rupee for shipments. So, sanctions by the West may not have an impact on the payments, barring exchange rate fluctuation, sources said on Friday.

Russia is one of biggest suppliers of defence products and equipment to India, mostly under government-to-government contracts.

Bilateral trade between India and Russia stands at USD 9.4 billion so far this fiscal year, against USD 8.1 billion in 2020-21.

India's main imports from Russia include fuels, mineral oils, pearls, precious or semi-precious stones, nuclear reactors, boilers, machinery and mechanical appliances, electrical machinery and equipment, and fertilisers.

Major export items from India to Russia include pharmaceutical products, electrical machinery and equipment, organic chemicals and vehicles.

In the past too, India had devised a mechanism to pay for imports from Iran when sanctions were imposed on the Persian Gulf nation.

India had entered into an agreement with Iran for carrying out trade-related transactions through a rupee account maintained with a state-owned lender.

As per the mechanism, Indian importers deposited payments in rupee in the 'vostro' account of Iranian banks, maintained with the Indian state-owned lender UCO Bank for imports including crude oil.

The account was also used to make payments to Indian exporters for sending goods to Iran and the payments were settled on daily basis.

On Thursday, Russia launched military operations against Ukraine, the biggest attack on a European state since World War II. Meanwhile, European Union leaders are putting up a united front and have agreed on a second package of economic and financial sanctions against Russia.

At the United Nations, officials set aside USD 20 million to boost UN humanitarian operations in Ukraine. Separately, the UN Security Council is expected to vote Friday on a resolution condemning Russia and demanding the immediate withdrawal of all its forces. Moscow, however, is certain to veto it.

Meanwhile, Finance Minister Nirmala Sitharaman said on Friday that restoration of peace is essential for sustained recovery of the pandemic-hit economy of the world as well as India.

India's development, she said, was being challenged by these global disturbances which have threatened world peace and the global value chain.

"No one country today can plan for its recovery particularly in an age when global value chains have already brought us closer to each other...when value chains are facing challenges and threats because of these kinds of disturbances, recovery not just for India but for countries everywhere will be severely hampered," she said.