India and Russia suspend talks to trade in rupees
- India and Russia have halted efforts to settle bilateral trade in rupees
- It was done after months of negotiations failed to convince Moscow to keep rupees in its coffers
Key impacts of the move
- This would be a major setback for Indian importers of cheap oil and coal from Russia who were awaiting a rupee payment mechanism to help lower currency conversion costs.
- With a high trade gap in favour of Russia, Moscow believes it will end up with an annual rupee surplus of over $40 billion if such a mechanism is worked out and feels rupee accumulation is ‘not desirable’
- The rupee is not fully convertible and India’s share of global exports of goods is just about 2%.
- These factors reduce the necessity for other countries to hold rupees.
- India started exploring a rupee settlement mechanism with Russia soon after the invasion of Ukraine.
Prelims take away
- Trade deficit
- Rupee convertibility