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Topic : India-Russia Trade Gap and Rupee Internationalisation Efforts
GS-2 Mains : IR
Context:
- India became a significant buyer of discounted Russian oil after Western sanctions.
- This created a trade gap with India importing much more from Russia than it exports.
Current Landscape (India-Russia Trade):
- Trade Deficit (2022-23): India ($41.5 billion imports) vs Russia ($2.8 billion exports).
- Russia became India’s second-largest oil supplier (FY23).
Rupee Conundrum:
- Traditional trade uses global currencies (USD, Euro) but sanctions complicate matters.
- Finding an alternative for India-Russia trade is crucial.
- Sanctions restrict Russian banks’ access to SWIFT, hindering transactions.
- India uses rupees for oil payments, but convertibility issues limit its usefulness for Russia.
- China pressurizes India to use Yuan, but India resists due to political reasons.
Why Yuan Benefits from Widening Trade Gap:
- China actively exports to Russia, unlike India facing trade challenges.
- China-Russia trade volume (2023): $240 billion (record high).
- Chinese exports to Russia surged by 47% year-on-year ($111 billion).
- Balanced trade between China and Russia fosters domestic currency use (95% in their respective currencies).
- Yuan is popular in the Russian stock market, surpassing USD.
- Russian oil exporters seek Yuan payments from Indian refineries.
- Limited use of rupee in India-Russia trade compared to Yuan in China-Russia trade.
Rupee Internationalisation Efforts:
- Slow progress in India-Russia rupee trade settlement talks.
- Both countries aim to reduce dependence on dominant global currencies.
- Proposed Rupee-Ruble Mechanism: A payment system using rupee and ruble to bypass sanctions and facilitate smoother transactions.
- Ambitious Goal: Increase India-Russia trade to $100 billion by 2030 (requires investment, energy cooperation, and currency use).
- Reducing Dollar Dependence: India seeks alternatives but avoids Yuan due to China tensions.
- RBI Circular (July 2022): Allowed additional arrangements for rupee trade settlement.
- Trade Invoicing and International Status: Crucial factor for rupee internationalisation (USD dominates at 88%, rupee at 1.6%).
- 4% Threshold: BIS Triennial Central Bank Survey benchmark (if rupee turnover reaches 4% – non-USD, non-Euro share – it gains recognition).
Conclusion:
- A sustainable solution is needed for India-Russia trade payment mechanisms.
- Resolving the rupee challenge is crucial for India’s economic growth and rupee internationalisation.
- Seamless trade mechanisms are needed to boost exports and enhance the rupee’s global standing.
- Using Yuan could harm rupee’s global aspirations, so policymakers navigate a balance between trade and currency sovereignty.
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