Soaring Russian oil imports render rupee trade futile

India’s love for discounted Russia oil is widening its trade deficit with Moscow and the casualty is their much-touted rupee trade plan.

The gap between their exports and imports is rising and that’s making the local currency payment mechanism futile, people familiar with the matter said, asking not to be identified as the discussions are private. No payment has been initiated because Russian banks do not want excess rupee piling up, they said.

New Delhi’s imports from Russia in eight months to November were almost 16 times its shipments to the nation, trade ministry data show. Russia’s war with Ukraine, which invited US-led sanctions, germinated the idea of rupee trade as India boosted its purchases of cheap oil from Moscow to contain a rising import bill amid high commodity prices. The mechanism worked as a template to draw out similar arrangements with other nations such as Mauritius and Sri Lanka.

Slow progress in the rupee trade with Russia could add to pressure on the local currency which slipped the most against the dollar among emerging Asian currencies in the past 12 months. India is betting on internationalization of the rupee to reduce dollar demand and make its economy less vulnerable to global shocks after current account deficit, the broadest measure of trade in goods and services, widened to a record in July-September.