TRUTH PUKE’S TAKE: The suspension of negotiations between India and Russia to settle trade in rupees represents a significant setback for Indian importers who rely on cheap oil and coal from Russia. After months of talks that failed to convince Moscow to keep rupees in its coffers, Russia believes that a rupee settlement mechanism would lead to a significant annual surplus of over $40 billion.
Russia is not comfortable holding rupees and wants to be paid in Chinese yuan or other currencies. India’s share of global exports of goods is just about 2%, and the rupee is not fully convertible, reducing the necessity for other countries to hold rupees. In the meantime, Indian traders are currently settling some of the trade payments outside Russia, using third-party countries to route or offset payments for their trade with Russia.
It remains to be seen whether India and Russia can find a way to settle trade in a mutually acceptable currency. If not, it could have implications for India’s energy security, and the country may need to look for alternative sources of oil and coal. The suspension of negotiations also highlights the challenges of negotiating trade deals with countries that have different economic priorities and interests. As such, India may need to be more flexible in its approach to negotiating trade deals, including exploring alternative settlement mechanisms and currencies.
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