India-Russia Payment Talks Hit Roadblock Over Currency, Trade Concerns
Date
5/11/2023 8:57:30 AM
(MENAFN) Negotiations between India and Russia to establish a rupee-ruble payment mechanism have reportedly hit a roadblock. According to anonymous officials from the Indian finance ministry, talks have been suspended after a year of negotiations. The main issue appears to be Russia's reluctance to have a surplus of rupees, which is expected to reach over USD40 billion this year, due to the growing trade imbalance between the two countries. However, an unnamed Russian official has dismissed these claims, stating that they are nothing more than "wishful thinking" propagated by Western media.
Another factor contributing to the suspension of talks is the complicated and costly process of currency conversion. Since the rupee is not fully convertible, there are double conversion charges that can amount to up to 3% of the total transaction value. This has been a major concern for both sides, as it is an additional cost that can be avoided with a more efficient payment mechanism.
Ajay Sahai, director-general of the Federation of Indian Export Organizations (FIEO), recently highlighted the "operational issues" that are causing difficulties in establishing the rupee-ruble trade mechanism. He mentioned that Russian exporters are concerned about dealing with a glut of rupees, and the exchange rate has also been a point of contention. Sahai recommended an administrative exchange rate that could be fixed for a limited period, such as 15 days, to save on additional hedging costs that Indian exporters are averse to.
In summary, the negotiations between India and Russia to establish a rupee-ruble payment mechanism have stalled due to concerns about a surplus of rupees and the complicated process of currency conversion. Both sides are facing operational issues that need to be addressed before an efficient payment mechanism can be established.
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