Explained | What is the Rupee-Rouble mechanism, and why is India considering reviving it?

As the West imposes harsher sanctions on Russia in a bid to stop its invasion of Ukraine, India — one of Russia’s trade partner — has been under pressure to reduce its oil imports, defence imports.

In the wake of the Russian invasion of Ukraine, the European Union has prohibited global transactions with Russian entities using euro-denominated banknotes, while the U.S. has cut off Russia’s access to the U.S. Dollar. This has made India, which continues to trade with Russia, consider reviving the Rupee-Rouble mechanism, previously used in 1953.

The Rupee-Rouble trade arrangement is an alternative payment mechanism to settle dues in rupees instead of Dollars or Euros. The idea was first conceived in 1953 under the Indo-Soviet trade agreement.

Under Article VI of the Indo-Soviet agreement:

The payments covered:

On March 24, 2022, External Affairs Minister S Jaishankar told Parliament that a multi-ministerial group had been convened to look into how to overcome challenges in trade with Russia, including managing payments for exporters and importers — indicating a possible revival of the ‘Rupee-Rouble trade’.

In response to a question by Akali Dal MP Naresh Gujral on whether the government would reactivate rupee trade with Russia, Jaishankar said “because of the emerging problems in dealing with Russia, [the] government is examining various aspects, including the payment aspect”.

“There is a group within the government composed of different Ministries. It is led by the Finance Ministry to examine these matters,” he added. Russian delegation may visit India in May to discuss Rupee-Rouble payment mechanism.