The State Bank of India (SBI) on Monday said that the current Russia-Ukraine crisis and the subsequent decoupling of Russia from the global economy is an opportunity for the internalization of the Indian Rupee (INR).
Even though the US Dollar will continue to be the denomination of global trade, an alternative settlement mechanism for international payments can boost the trade between select countries in the INR.
“… the alternate settlement mechanism (to the USD) being envisaged by select nations desirous of continuing inter-territorial trades of compulsory nature, circuiting around the western sanctions as backdoor talks gather momentum for rupee-ruble…,” Soumya Kanti Ghosh, group chief economic adviser at the SBI, said in the report.
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“This… should present the moment of reckoning for the internationalisation of rupee too, underpinning the need to evolve alternate payment and settlement mechanisms,” he further said.
India and Russia are contemplating ways to circumvent the Russian sanctions by denominating their bilateral trade in Rupee-Ruble.
Moscow has been made an economic pariah after Russia invaded Ukraine in late February, sparking a series of severe economic sanctions against it, cutting it off global trade and going as far as cutting Russia off the SWIFT payment system.
India is close to finalizing an alternate payments system (in Rupee-Ruble transaction) to ensure that its bilateral trade with Russia remains intact, as per media reports.
The economic sanctions on Russia and its removal from the SWIFT system has shot up the fuel prices, devalued several Asian and African curries and has brought in an impending food inflation.
State-owned Indian Oil Corporation (IOC) purchased 3 million barrels of Russian Urals, as per a Reuters report.
Russia is offering oil at a heavy discount, especially when Brent crude is trading at around USD110 per barrel. India imports around 80 percent of its energy imports.
India will also be looking to import fertilizers and potash from Russia given their prices have shot up as well and a costly fertilizer will increase the subsidy which the Indian government provides to the farmers.
Russia is a major exporter of potash, phosphate and nitrogen-containing fertilizers.
