While China is still trying not to fully alienate the US while effectively siding with Putin in Ukraine (see “China Calls US ‘Culprit’ For Ukraine Tensions” yet “China State Banks Restrict Purchases Of Russian Commodities, Pause Buying Russian Seaborne Crude“), Asia’s other superpower, India, has no such qualms and according to Nikkei Asia, India is exploring ways to set up a rupee payment mechanism for trade with Russia to soften the blow on New Delhi of Western sanctions imposed on Russia – including a potential expulsion from SWIFT – after its invasion of Ukraine, government and banking sources said.
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Putting its own national interest first, Indian officials are concerned that vital supplies of fertilizer from Russia could be disrupted as sanctions intensify, threatening India’s vast farm sector. Russia and Belarus usually account for nearly a third of India’s total potash imports. It would not be feasible to replace them amid a rally in fertilizer prices to a record high, a senior industry official told Reuters.
Officials said the plan was to get Russian banks and companies to open accounts with a few state-run banks in India for trade settlement, a banking source involved in the discussions said.
“This is a proactive move assuming that the conflict escalates and there could be a slew of sanctions in place,” the Nikkei source said. “In this case we would not be able to settle the transaction in dollars and so an arrangement has been proposed to set up a rupee account, which is being considered.”
Funds in such accounts act as a guarantee of payment for trade exchanged between two countries, while the parties barter commodities from each other to offset the sum, the source said.
A similar arrangement, in which part of the settlement with Russia is in foreign currency and rest is through local rupee accounts, was also being explored, said the banking and the government source.
Such mechanisms are often used by countries to shield themselves from the blow of sanctions and India also used it with Iran after it came under Western sanctions for its nuclear weapons program, the source said. The program was introduced in 2012 and worked well for several years.
The discussions on Russia were still at an early stage and formal talks had not yet begun between the two sides, an Indian government official said.
EU leaders agreed on Thursday to impose new economic sanctions on Russia, joining the United States and Britain in trying to punish Russian President Vladimir Putin and his allies for the attack. The sanctions impede Russia’s ability to do business in major currencies and target individual banks and state-owned enterprises. A further financial blockade of Russia, in the form of a SWIFT expulsion, is currently being discussed.
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Russian exports to India stood at $6.9 billion in 2021, mainly mineral oils, fertilizers and rough diamonds, while India exported $3.33 billion worth of goods to Russia in 2021, mainly pharmaceutical products, tea and coffee.
New Delhi is also holding a meeting with fertilizer industry officials on Friday to explore ways to secure supplies from Russia and Belarus, said a senior fertilizer industry official, who declined to be identified.
Similar to China, India has called for an end to violence in Ukraine but refrained from outright condemnation of Russia, with which it has long-standing political and security ties.