'India, Russia central banks renew talks to expand local currency trade'

The Indian and Russian central banks have renewed discussions to set a mechanism to expand local currency trade, in a move to iron out payment issues after a surge in bilateral trade since the war on Ukraine in 2022, a government source said.

The discussions between the two central banks involve setting a reference rate between two local currencies for trade instead of determining the value of currencies against the US dollar, the Indian government source said on Wednesday.

Indian central bank officials are in Russia this week to discuss settlement of payments between the country for their bilateral trade, a second banking industry source said.

Russia has emerged as the second biggest exporter to India, after China, with exports growing to $23.78 billion in the first four months of the current fiscal year starting in April, up 20.3 per cent from a year ago.

India's imports from Russia, mainly crude oil, have surged after the start of the Russia-Ukraine war, with imports touching $61.43 billion in 2023/23, up 33 per cent compared to the previous fiscal year.

To have a reference rate between the two local currencies, the currencies need to be traded over an exchange for a prolonged time, which the two countries are yet to agree on, the source said.

"If we have a direct exchange rate, we do not have to peg it to any currency, including dollar. But that would require rupee, and rouble to be traded in the same currency exchange platform for a much larger quantity and for a longer duration," the source said.

Both central banks will have to work out the modalities of identifying the exchange rate, the source said.

Russian central bank declined to comment while the Reserve Bank of India did not immediately respond to an email seeking comment.

Officials of both central banks are also looking into the accumulation of the rupee by Russian companies in Indian bank accounts due to current trade imbalance between the two nations.

The government source said the accumulated Indian rupees by Russian firms has dropped to a "few million dollars" from varying estimates of multi-billion dollars as the surplus was used to make payments to the Indian exporters.

India's exports Russia rose over 35 per cent year-on-year to $4.3 billion in 2023/24.

 

(Reporting by Nikunj Ohri and Manoj Kumar in New Delhi; Additional reporting by Nimesh Vora in Mumbai; editing by David Evans)