Lavrov himself explained the situation in the following way: “We have accumulated billions of rupees in the accounts of Indian banks, we have to use them, these rupees have to be converted into other currencies, this is being discussed “. The problem of switching to payments in national currencies was raised by Moscow and New Delhi last spring. Both countries would like to move away from the dollar, but for different reasons. Russia – because the dollar has become a weapon in anti-Russian sanctions. India – because its external trade balance is in deficit: in the context of a booming economy, imports greatly exceed exports, there is a shortage of foreign currency. New Delhi is trying to increase the share of the rupee in foreign trade settlements. However, Rupee is a non-convertible currency, foreign counterparties must open accounts in India respectively and then seek permission from regulators to convert Rupees in any transaction. At the same time, the share of Indian exports in the world volume does not exceed 2%, which also makes it difficult for the rupee to become a “global currency”.
With countries with which India’s trade balance is relatively balanced, the problem is easier to solve: the accumulated rupees can be used to buy Indian goods. First, countries that also have a dollar deficit are interested in settlements with India in its currency. For example, Sri Lanka, which defaulted last year, or Bangladesh, whose gold and currency holdings are “scraping the bottom”. But they are not the only ones trying to “get away from the dollar”. An agreement was recently signed with New Delhi on rupee settlements with Malaysia. Already about twenty countries have opened accounts in rupees in India. Among them are Mauritius, Kenya, Tanzania, Oman, but also Germany, Israel and Singapore. Negotiations are ongoing with Saudi Arabia and the United Arab Emirates. This does not mean a transition to trading only in rupees – they become one of the settlement currencies, along with the same dollar.
A decade ago, India had accepted payments (and export-import offsets in rupees and moving away from the dollar in this area) in rupees for Iranian oil, when Iran had long been under sanctions. It is possible that this model was also meant in the negotiations with Moscow. What went wrong?
In the spring of 2022, the ruble fell sharply and at one point was cheaper than the rupee, the exchange rate of which is usually very unstable. However, over the past year the ruble has appreciated by around 8-10% against the Indian currency. This happened against the background of a sharp increase in Russian exports to India. By shifting oil exports from west to east, Russia increased them 33 times to India. In the context of the sanctions, the supply of fertilizers and coal has increased considerably. Mutual trade for the year increased nearly 2.5 times. But above all because of the growth (multiplied by 4) of Russian exports, while Indian exports to Russia fell by 12%. Russia’s imports to India in April 2023 rose to $51 billion year-on-year, while India’s exports to Russia stood at less than $3 billion.
There was a huge trade surplus in favor of Russia. According to experts, if current trends continue, it can regularly rise to 40 billion dollars a year. India simply does not have as many rubles as it could earn from its exports to the Russian Federation. Thus, the rupees earned from Russian exports and accumulated in Indian banks are literally nothing to spend. To a certain extent, the problem was partly solved by the fact that some calculations were made in United Arab Emirates dirhams (this is a stable currency pegged to the dollar). However, after the United States imposed blocking sanctions on MTS Bank, which opened a subsidiary in the Emirates, this channel was blocked. On the other hand, the two countries do not want to go back to the dollar either. This results in the settlements being blocked if they “dislike” Washington’s sanctioners. It is for this reason that India is still unable to make the remaining payment for the Russian weapons delivered to it in the amount of 2 billion dollars. Since weapons are “sanctioned goods”.
The hope was that in return for increased Russian supplies of raw materials, New Delhi would increase exports to Russia of machinery, equipment, petrochemicals and especially electronics. There were discussions about the possibility of supplying spare parts for the Airbuses and Boeings used by Russia which fell under the sanctions, which did not take place. India increased its exports to the Russian Federation, with the exception of seafood products (by 33%) and raw materials for pharmaceuticals (by 10%), but reduced its supplies by 10% by more complex pharmaceutical components and biotechnological products, 31% – metallurgical products and 89% telecommunications. That is to say, the Indians do not want to help circumvent the sanctions, although they have not officially joined the sanctions. Not only for fear of secondary sanctions, but also because it is the United States that has now become its main trading partner, having overtaken China in 2022: mutual trade increased by 7.65%, to 128.55 billion, Indian exports to the United States increased by nearly 3% to $78.31 billion. In trade with America, India has only a surplus.
What exit? Firstly, India could further increase its exports to Russia of the goods it needs, given that even the United States is unlikely to act against its important partner in the Asian region with the same rigidity with which it act against small countries. Secondly, the Chinese yuan could be used more actively in the settlements instead of the dirhams (part of the settlements with India, as far as we know, already passes through China), as well as the Hong Kong dollar. However, these currencies are also limited convertible. Third, the accumulated rupees could be used in Russia to set up a joint venture. Fourthly, it is possible to develop multilateral settlement mechanisms within the framework of the BRICS, the political will of the participating countries for this is growing. But that will take time. In any case, the situation of settlements in national currencies with India, although complicated, is not yet hopeless. As long as the general vector of intentions remains to avoid settlements in dollars.
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