Last Thursday (4 May), it was reported by Reuters that India and Russia have both suspended efforts to settle bilateral trade in rupees, after months of negotiations failed to convince Moscow to keep rupees in its coffers. This was told to Reuters by two Indian government officials.
It is a major setback for Indian importers of cheap oil and coal from Russia, who were waiting to buy Russian resources in rupees.
Currently, Russia runs a trade surplus with India and feels that rupee accumulation is ‘not desirable’, said an Indian official who did not want to be named.
India started exploring a rupee settlement mechanism with Russia soon after the invasion of Ukraine in February last year. Both Russia and India have spoken about facilitating trade in local currencies, but the guidelines were not formalised.
The rupee is not fully convertible at the moment. India’s share of global exports of goods is only about 2%, and these factors reduce the necessity for other countries to hold rupees. That is to say, there is no demand for rupees internationally.
Russia has told India that it is not comfortable holding rupees and wants to be paid in Chinese yuan or other currencies instead, according to a second Indian official who told Reuters.
India has tried everything it could but Russia simply did not find receiving payments in rupees attractive.
Since Russia’s invasion of Ukraine last year, India’s imports from Russia have risen to US$51.3 billion till April 5, from US$10.6 billion over the same period in the previous year.
Discounted Russian oil has constituted a large part of India’s imports, surging twelve-fold in the period. But exports from India in the same period fell to US$3.43 billion.
The sources said Indian trade with Russia has been continuing despite sanctions and payment issues. “Right now we are making some payments in (UAE) dirham and a few other currencies but the majority is still in dollars. Settlement is happening in different ways, third party countries are also being used,” one of the Indian officials said.
China has been named as one of the third-party countries.
Indian rupee fallen 60% since signing of CECA
Meanwhile, TOC reported in Jan this year that since the signing of Comprehensive Economic Cooperation Agreement (CECA) on 29 June 2005, the Indian Rupee has fallen almost 60% against the Singapore Dollar (1 INR = 0.039 SGD on 26 Jun 2005).
In fact, the rupee has been suffering from a free fall against SGD since six decades ago:
And not surprisingly, Singapore is the leading contributor to India’s foreign fund inflows after the signing of CECA. India’s Foreign direct investment (FDI) stood at US$58.8 billion in 2021-22, with Singapore emerging as the top contributor among the list of 15 nations, according to a news report last year.
It’s not known if GIC and Temasek are making any good returns on investment in India, in terms of SGD, after years of investing in India.