Home / Politics / Policy /  Exporters to Russia in a fix as Sberbank levy raises cost
Back

Exporters to Russia in a fix as Sberbank levy raises cost

Russia has become one of India’s top energy sources, surpassing Saudi Arabia and Iraq. Premium
Russia has become one of India’s top energy sources, surpassing Saudi Arabia and Iraq.

Indian exporters are witnessing an increase in the cost of shipping goods to Russia, with state-run Sberbank charging a 4% premium on settling these trades, multiple people aware of the matter said, at a time India’s trade deficit with Russia has ballooned

NEW DELHI : Indian exporters are witnessing an increase in the cost of shipping goods to Russia, with state-run Sberbank charging a 4% premium on settling these trades, multiple people aware of the matter said, at a time India’s trade deficit with Russia has ballooned.

The move assumes significance since Sberbank, Russia’s largest lender that remains out of Western sanctions, is among the few Russian banks that have agreed to settle trade in rupees.

To address these concerns, in July, the Reserve Bank of India proposed a rupee settlement mechanism to trade with Russia; however, the mechanism is still to take effect.

Banks are unsure how rupee-rupee trade settlement works, said Arun Kumar Garodia, chairman of the Engineering Export Promotion Council of India (EEPC). “Some Russian banks, as well as Indian banks, have agreed to the settlement of trade in the rupee, but not all banks are on board. Their main bank is Sberbank, and they agreed to pay in rupees. But now, exporters are in a fix as their website says an additional 4% premium will be charged, which makes trade more difficult," Garodia said, adding that state-run banks at least recognize exports to Russia, but private banks do not even issue a bank realization certificate (BRC), which acts as a confirmation that the exporter has received payment for the export of goods from the purchaser.

Without a smooth transaction mechanism and the fear of western sanctions, India’s exports to Russia fell about 24% in the April-August period.

At the same time, Russia has become one of India’s top energy sources, surpassing even traditional suppliers Saudi Arabia and Iraq.

“Russians need hard currency, and that would pose a problem shifting to rupee trade," said Biswajit Dhar, professor at the Centre for Economic Studies and Planning, School of Social Sciences, Jawaharlal Nehru University. “Rupee holdings with the Russians have been high because of the trade deficit. Other than that, the exchange rate has been an issue, which has resulted in disagreements in the past, too. With the current trade imbalance, the rupee settlement mechanism is difficult. Moreover, the trade gap is rising because Indian exporters fear getting hit, dealing with sanctions-hit Russia," Dhar added.

Ajay Sahai, director general of the Federation of Indian Export Organisations (FIEO), said that some exporters reported the high conversion charges levied by some of the banks in the rupee-rouble trade.

“However, such transactions are not under the new rupee payment mechanism notified by the RBI on 11 July 2022. The RBI-designed mechanism only entails trade in the Indian rupee, thus eliminating the exchange risk. Since some banks have tied up with their counterparts in Russia with corresponding bank relationships and DGFT has clarified the availability of complete export benefits on such transactions, we expect the same to operationalize in a week or so," he said.

Queries sent to the commerce ministry, Russian embassy in India and Sberbank remained unanswered till press time.

Currently, India-Russia trade happens through 12 or 13 small Russian banks, which are not on the sanctioned list, and they transfer the payments from the Russian side to the Indian exporters’ banks in dollars, an exporter said. He added that while public sector banks are crediting the payments to the exporters’ accounts and giving the BRC, private sector banks are not doing that.

Exporters settling trade in rupee terms will be able to avail of export incentives or duty rebates following amendments in the foreign trade policy made by the DGFT last week. The move is aimed at encouraging exporters to boost shipments to countries like Russia. Negotiations are also reportedly on with other countries, including Cuba and Sudan, to settle trade in rupee terms.

According to a study by FIEO, India’s shipments to Russia could grow by another $5 billion once the rupee settlement mechanism becomes functional.

The study further shows that farm products, food, pharma, 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, this could be a big opportunity for India, it added.

Catch all the Politics News and Updates on Live Mint. Download The Mint News App to get Daily Market Updates & Live Business News.
More Less

Recommended For You

Trending Stocks

×
Get alerts on WhatsApp
Set Preferences My ReadsWatchlistFeedbackRedeem a Gift CardLogout
x