‘Rupee settlement to raise exports to Russia by $5 bn’

India’s shipments to sanctions-hit Russia could grow by an additional $5 billion once the rupee settlement mechanism becomes functional, partially offsetting the demand slowdown in key western economies, according to a study by the Federation of Indian Export Organisations (FIEO).

The study shows that farm products, food, drugs and engineering equipment are the key areas where India could see a boost in exports to Russia, with supplies from the European Union nearly coming to a halt, especially for industrial and engineering goods, thereby creating opportunities for India.

“India’s exports to Russia can grow by $5 billion once the rupee settlement mechanism comes into effect in the next one year. While our exporters want to ship to Russia, the exchange rate risk is holding them back. Once the rupee mechanism is in place, a slew of sectors can gain, especially industrial equipment and food and agro-processing. There is immense potential there,” said Ajay Sahai, director-general and chief executive of FIEO.

Currently, exports to Russia are being settled in euros.

“Now, export orders to Russia are picking up with supply partnerships in place for at least the food items,” Sahai said.

A slew of Russian companies has tied up with Indian buyers for supplies.

India’s exports to Russia have seen the contraction ease to 4.72% in August on a year-on-year basis from a decline of 13.1% in July. New Delhi’s exports to Moscow saw a 24% decline in the April to August period to $992 million.

“With Russia, our imports are ten times the imports. But there is a very good chance of increasing our exports to Russia. That’s because when they are holding much of the Indian rupee, either they will want to invest in capital in India or they would increase our exports,” a government official said.

Queries sent to the ministry of commerce and industry remained unanswered till press time.

Exim Bank managing director Harsha Bangari said in an earlier interview that INR invoicing will be very process-driven and that there would be RBI oversight over the entire process. RBI has approved the mechanism, but banks which will open Vostro accounts will have to take due permission. So we are talking about RBI oversight over the entire process, she highlighted.

Exporters are also urging the department of commerce to ask the Reserve Bank of India to expedite the rupee settlement mechanism through the special Vostro account. Besides, it has asked the government to also extend the export benefits from incentive schemes like Remission of Duties and Taxes of Export Products (RODTEP) and Export Promotion Capital Goods (EPCG) to be available in case trade is settled in rupee. Currently, it is allowed only in case settlement is in freely convertible currencies like the dollar, euro, and British pound.

Nevertheless, imports from Russia grew by more than fivefold in the first five months of the current fiscal to $17.23 billion. Although crude oil imports accounted for 85% of total imports from Moscow, shipments of sunflower oil, fertilizers, silver, printed books, coriander seeds, and furniture items reported a sharp spike, suggesting that New Delhi was steadily expanding trade ties with Russia.

The prices of Russia and Ukraine’s major exports, particularly food, fuels, and industrial metals, soared as the war has disrupted supplies of these essential commodities,” the DHL Trade Growth Atlas report said..