India, Russia said to suspend talks to settle trade in rupees

Source: The post is based on the article “India, Russia said to suspend talks to settle trade in rupees” published in The Hindu on 5th May 2023

What is the News?

India and Russia have halted efforts to settle bilateral trade in rupees after months of negotiations failed to convince Russia to keep rupees in its coffers.

Why have India-Russia talks to settle trade in rupees halted?

India and Russia have been engaged in talks for a rupee trade settlement mechanism for over a year.

However, reports suggested that months of negotiations had ultimately failed to convince Russia to keep rupees in its chests.

This is because, with a high trade gap in favour of Russia, it believes it will end up with an annual rupee surplus of over $40 billion if such a mechanism is worked out and feels rupee accumulation is ‘not desirable’.

The rupee is also not fully convertible and India’s share of global exports of goods is just about 2%. These factors reduce the necessity for other countries to hold rupees.

What would be the impact of halted India-Russia trade talks in rupees?

This would be a major setback for Indian importers of cheap oil and coal from Russia who were awaiting a rupee payment mechanism to help lower currency conversion costs.