[Answered] A number of countries, including India, are now considering the use of other currencies to avoid the U.S. dollar. In the light of the statement, how far do you think, Rupee-Rouble trade will be beneficial for Indian Economy.

The Rupee-Rouble trade arrangement is an alternate payment mechanism that can allow Indian exporters to be paid in Indian rupees for their exports to Russia instead of standard international currencies such as dollars or euros. Under this arrangement, a Russian bank will need to open an account in an Indian bank while an Indian bank will open its account in Russia. Both sides can then mutually agree to hold currency worth a specified amount in the local currencies in their respective accounts.

Beneficial for Indian Economy:  

• The depreciation of Indian Rupee with respect to US Dollar has made imports costlier for India, hence buying oil with a depreciated rouble, and at discounts, is cost-saving. It also saves transport time with the use of multi-modal routes using land, sea and air routes.
• Russia might use the surpluses in the Vostro rupee account in Russian banks for additional purchases from India, which can reduce the trade deficit India has with Russia.
• It is important for India to have an alternative payment mechanism in place with Russia as many western countries have blocked several Russian banks from accessing the Society for Worldwide Interbank Financial Telecommunication (SWIFT).
• Provide stability to the Indian economy and prevent inflation and capital flight.
• Prevent the drop in foreign exchange reserves.

Challenges:

• Primary concern is to find an agreed exchange rate between the rupee and the rubble (R-R) since both are very volatile.
• The two governments must also be able to convince the private parties (companies, banks) to accept the rupee for trade and settlements.
• There are also concerns that the purchases especially that of Crude Oil can be seen by the western nations as an ‘indirect back door support’ to the Russian cause, which can adversely impact India’s relations with the West.
• The fluctuation in the value of the rouble could make it difficult to implement the Rupee-Rouble Payment Mechanism.

The India-Soviet agreements of the past may provide a clue on how the current ‘R-R’ trade and the problems can be managed by initiating a push for Indian exports to Russia and, of course, avoiding all deals in dollars- benefiting both trade partners and countering, globally, the on-going currency hierarchy.