A reported impasse in the use of the rupee for trade between India and Russia is seen more as posturing rather than a failure of the arrangement as both sides cannot manage without each other in the context of the prevailing global political situation. There have been reports that India and Russia have suspended negotiations for sorting out the problems in the trade between the two countries using the Indian currency. Russia has a huge trade gap with India in its favour, leading to an estimated annual rupee surplus of more than $40 billion, which Moscow has to use up for its transactions with third countries as imports from India would account for only a fraction of it. Russian Foreign Minister Sergei Lavrov had told newspersons on the sidelines of the Shanghai Cooperation Organisation meeting in Goa that the ballooning trade surplus with India was a huge problem that needed an urgent solution. According to figures published by the Ministry of Commerce and Industry, India’s total exports to Russia shrunk 11.6 per cent to $2.8 billion in the first 11 months of the 2022-23 financial year, while imports rose nearly fivefold to $41.56 billion.
India has played no small measure in bringing about a seismic shift in the global crude oil market, culminating in unprecedented shifts in trade flows, most notably of Russian oil from Europe to Asia. This helped Russia to redirect as much volume as possible to alternative markets. India, with its huge appetite for cheaper oil, has been snapping up Russian crude, offered at deep discounts by Moscow in its bid to beat the Western sanctions in the wake of the Ukraine war. Before the breakout in February 2022, the share of Russian crude in India’s oil basket was less than 1 per cent. This rose to around 35 per cent one year later, accounting for 1.62 million barrels per day. For Russia, the embargo-busting Indian imports constituted Moscow’s biggest arsenal to spite the US and the Western allies showing that it couldn’t care less. The diversion of oil flows from Europe to Asia helped Moscow not only to maintain oil output but even increase it.
The India-Russia rupee trade has had a positive effect on the Indian economy. Firstly, it allowed India to reduce its dependence on foreign currencies, which helped to stabilize the rupee. This has also enabled New Delhi to purchase military equipment at a much lower cost, which has resulted in increased military spending. This increased spending has had a positive effect on the Indian economy, helping create jobs and increase economic activity. Although India and Russia have had a long-standing relationship, and the two countries have been trading with each other for many years, the introduction of the rupee-rouble trade has presented some unique challenges. These include the lack of liquidity in the rupee-rouble market, which is relatively small compared to other currency markets, and there is limited liquidity in the market. This means that it can be difficult to find buyers and sellers for rupee-rouble trades, leading to higher transaction costs and longer transaction times. The infrastructure for rupee-rouble trading is still in its infancy, and there are limited options for traders to access the market. This can make it difficult for traders to access the market and execute trades.