The grammar of commerce in a new age of geopolitics Premium
The Hindu
The prevalent geo-economic scene has also led to further settlements in local currencies
That India is a favoured trading partner, with potential for a large market, has been quite evident, at least since March 2018 when 23 advanced and developing countries agreed to have currency swap arrangements with India, extending credits in settling transactions.
There has been an unexpected turn in the use of the Indian rupee for international transactions after the Ukraine-Russia war began in early 2022, in turn leading to sanctions imposed by the United States and the European Union on Russia, by directly targeting the assets of Russian financial institutions. The issue became serious for Russia (one of the largest suppliers of India’s 212.2 million tons of crude oil imports during 2022) and for India (a large market for Russian exports). An alternative route was chosen to settle payments between India and Russia by using the Indian rupee in transactions related to trade between the two countries.
When it comes to the modalities, payments from either India or Russia now go to the Rupee Vostro accounts, opened in Russian banks by the authorised dealer banks in India, which take care of settling payments between the two countries. Indian importers, going by the terms in this arrangement, pay rupees to the Rupee Vostro account through authorised Indian banks against invoices presented by the Russian supplier. The arrangement is supposed to provide for payments to Russians — for items India has been importing on a regular basis such as mineral fuels, crude oil and even the air defence system. Exports from India can also be paid in rupees from the same Vostro account maintained with the corresponding bank in Russia.
While the arrangement seemed to be fool-proof, a problem emerged in meeting the payments, with Russia continuing with a trade surplus — despite global turmoil, the sum in 2020-21 amounted to $3.42 billion, followed by similar surpluses in the following years. With Russia reluctant to hold more of the Indian rupee as an asset in the Vostro account (as the rupee has a low rank in the global currency hierarchy and may be subject to depreciation), India faced an issue in arranging for payments and letting the agreement continue. The options were few, with the dollar or the Euro not permissible (the sanctions prevent some Russian banks from making or receiving international payments using SWIFT) or by purchasing the rouble at an exchange rate which is too volatile in the market. As reported in the media, Indian refiners for instance have settled some payments for Russian oil imports using the Chinese yuan — which seems to be acceptable to Russia. This is in the backdrop of Russia selling oil to China and accepting yuan payments.
The concerns highlighted above bring back memories of similar bilateral trade and clearing arrangements that India had initiated in the 1950s. This was a major tool used in conducting trade with the former Soviet Union and countries in the Soviet bloc — arrangements that reflected the inter-war clearing arrangements in Europe largely used to contain and confine mutual trade within the region.
In a similar manner, bilateral trading arrangements between India and the Soviet Union provided a closed account in rupees to handle merchandise as well as credit-related transactions between the two countries, with the rupee as the medium for all such dealings. It began in the 1950s, with the Soviet Union setting up a steel plant in Bhilai, defying the opposition from western nations. Loans from the Soviet Union to India as well as the net proceeds from trade were pooled through the bilateral clearing account which was denominated in rupees.
Problems similar to concerns now over the choice of a suitable currency to settle trade surpluses came up earlier too when the Soviet Union began having trade surpluses on a consistent basis. The floating of the dollar in 1971 led to a turmoil in the currency market and the rouble, at 10 to a rupee, was virtually left to the market. Problems worsened with the Balkanisation of the former Soviet Union that left Russia standing separate. The India-Soviet Agreement had a natural ending at that stage.
As an individual of influence, blessed with a larger-than-life personality Lord Byron captured the imagination of many who crossed his path. Beyond his literary genius, his life was filled with intriguing stories that are often overlooked—like keeping a pet bear at university and possibly inspiring the first vampire in English literature. Dive in to uncover the fascinating facets of this enigmatic figure.