The war in Ukraine has focussed attention on Russia’s global exports as sanctions on Russia have led to sharp rises in various commodity prices. Russia is a key supplier of not just oil and gas, but also wheat, metals and fertilizers. The problem is further aggravated due to exclusion of Russia from global Society for Worldwide Interbank Financial Telecommunication (SWIFT) mechanism, which would mean that payments for trade with Russia would not be permissible in Dollars.
India’s exporters have payments of around $400-500 million pending in Russia due to Ukraine war and subsequent economic ban on Russia and its exclusion from the SWIFT mechanism by the western powers. In 10 months of FY 2022, India’s exports to Russia totalled $2.85 billion against $7.90 billion of imports.
There is a talk abuzz that the Rupee-Rouble trade mechanism needs revival because after excluding Russia from SWIFT, the payments to be received by the Indian exporters from Russia have been held up. There are some experts who believe that as economic sanctions against Russia are increasingly being used as a weapon of war by the western powers, the countries trading with Russia need to have an alternative mechanism of payments. Some experts have suggested to identity an Indian bank in which Russia would deposit rouble, while India will deposit rupees. Russia would use all the rupees it gets from Indian importers to buy goods; Indian exporters would use all the roubles they get from Russia to pay for imports from Russia.
Sanctions on Russia would have adverse effects on Indo-Russian trade. Amidst the uncertainties, there has been substantial depreciation in Rupee (Rs. 77/Dollar), making Indian imports more expensive. However, India’s non-weapon non-oil trade with Russia is miniscule, and so the effect would be minimal. Nevertheless, the exclusion of Russia from the SWIFT platform as part of the sanctions has held up millions of dollars in payments of Indian exporters of tea, steel, chemical and pharmaceutical. The tea exporters said that rupee payment has come but the dollar payment has not yet come. India is the largest exporter of tea to Russia amounting to 43-45 million kg.
Some analysts also feel the rupee-rouble trade mechanism could open an alternative channel for Global South to continue trading with Russia. This would be possible because already many Russian banks are present in India. Large Russian banks with a presence in India include VTB, Sberbank and Gazprombank. Russia’s state-owned development bank VEB is also engaged in such trades.
VEB and the RBI are in the process of finalising an alternative transaction platform to facilitate bilateral trade, Experts feel that apart from facilitating India-Russia bilateral trade, the Rupee-Rouble platform might facilitate the Global South’s alternative financial transactions with Russia.
Increasing economic sanctions have created problems in other currency zones as well, particularly Iran. The countries of the world are entering into currency swap deals to continue trading without depending on dollar. The post World War western dominated financial architecture appears to many as a skewed global financial system. In view of this Rupee-Rouble mechanism may open an era of trade without dollars. The global financial system should not ideally be leveraged as a weapon war by any group of countries, otherwise it would lose trust.
Russia was the 13th largest exporter of the world ($337 billion in 2020) and 21st largest importer ($231 billion). The top imports of Russia in 2020 were cars ($7.75 billion), vehicle parts ($7.28 billion), Broadcasting Equipment ($7.15 billion), packaged medicaments ($7.06 billion) and computers ($4.1 billion) importing mostly from China ($50.7 billion), Germany ($26.1 billion), Belarus ($12.8 billion), South Korea ($7.93 billion) and Italy ($7.17 billion).
The top exports of Russia are Crude Petroleum ($74 billion), Refined Petroleum ($48 billion), Petroleum Gas ($19.7 billion), Gold ($18.7 billion) and Coal Briquettes ($14.5 billion), exporting mostly to China ($49.3 billion), United Kingdom ($25.3 billion), Netherlands ($22.5 billion), Belarus ($15 billion) and Germany ($14.2 billion).
The biggest problem for developing countries arises from the fact that Russia exports significant quantities of grains and has imposed a halt on grain shipments to its neighbours in the Eurasian Economic Union until the end of August to “maintain stability on the Russian market”. The two largest buyers of wheat from Russia, Egypt and Turkey, have seen disruptions in supply due to closure of Black Sea ports consequent upon Ukraine war. As Russia and Ukraine both supply one-third of the total global supplies of wheat, disruption in supply of wheat has pushed the prices up.
And the problem might be complicated further due to exclusion of Russia from the SWIFT mechanism. In such cases, arrangements like Rupee-Rouble mechanism might see spurt. The Global South suffers in a war by global powers and they may explore alternative payment system, keeping Indian model as a guiding principle.