Neighbours, Russia can help convert 16.38% of India's trade into rupees

The rupee's use in trade settlement would help the RBI in conserving foreign exchange. India's forex reserves have fallen by more than Rs 1 trillion since the outbreak of the Russia-Ukraine war

The Reserve Bank of India (RBI) introduced on Monday a mechanism to settle international payments in rupee. India could convert 16.38 per cent of its total trade from US dollars into rupees if its neighbours (excluding Pakistan) and Russia, which is under Western sanctions, follow the central bank’s policy, according to analysis of Ministry of Commerce's data. India's total trade volume with the world stood at Rs 77.15 trillion in FY22. 

Rupee’s use in trade settlement would help the RBI in conserving foreign exchange. India's forex reserves have fallen by more than Rs 1 trillion since the outbreak of the Russia-Ukraine war in February. According to RBI's latest figures, it stood at Rs 46.43 trillion as compared to Rs 47.52 trillion in February. The rupee fell to a record low on Tuesday as declines in the domestic share market and weakness in other Asian currencies on fears of a global recession weighed on the unit despite recent measures by the central bank to boost dollar inflows.

The rupee was Tuesday morning trading at 79.61 against the US dollar versus its close of 79.44 on Monday.

Rupee settlement would allow India to bypass the orders preventing the use of the US dollar for trade, like in case of sanctions imposed by western countries in Russia. The total trade between India and Russia was Rs 0.98 trillion in FY22, less than 1 per cent of India's total global trade. That trade has gone up significantly after March when Russia started selling oil to India at discount. 

Before the war, Russia made up just 0.2 per cent of the total oil imported by India, according to official data. By May, this had jumped to 10 per cent, making Russia India's second biggest oil supplier. India imported 25 million barrels of Russian oil in May. 

The share of neighbouring countries, in India's total trade volume in FY22 stood at 15.11 per cent, according to Ministry of Commerce data. Goods worth Rs 11.66 trillion were traded between India and these countries namely China, Afghanistan, Sri Lanka, Nepal, Bhutan, Myanmar, Bangladesh and Maldives (Pakistan excluded). China was India’s biggest trading partner among these countries in FY22, accounting for over half of the figure at Rs 8.6 trillion.

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Bangladesh was India's second-biggest trade partner in the neighbourhood, with a trading volume of Rs 1.35 trillion. Nepal followed Bangladesh on the list. The trade volume between India and Nepal stood at Rs 0.82 trllion in FY22.

Sri Lanka’s tottering economy could gain if it trades with its giant neigbour in Indian rupees. The Indian government has extended credit lines worth over $3 billion for fuel, fertilisers and other essential supplies to help Sri Lanka stay afloat.