India and Russia will have currency swaps in place to finance trade in rupee and ruble payments. The arrangement would allow India and Russia to carry out financial operations bypassing the US dollars. Russia is effectively blocked from using US currency due to Western sanctions over the conflict with Ukraine.
Indian government is reportedly working on a proposal to allow upto five nationalized Indian banks to be engaged in deals with Russia. Such an arrangement would let Indian exporters continue doing business with Russia despite sanctions and ban on international payment mechanisms such as SWIFT. The activation of the Russia-India swap line is important for both the countries as trade between them is growing across sectors.
India exported $3.3 billion worth of goods to Russia in 2021 which mostly included pharmaceutical products, tea and coffee. In terms of imports, India bought $ 6.9 billion worth of Russian products, including Arms and Defense goods, mineral resources, fertilizers, Metals, Diamonds and other precious stones.
The Indian Oil Corporation has stepped up purchases of Russian crude over the past month in order to mitigate the rise in Brent crude oil prices. Indian firms and exporters also are eager to fill the gap in the Russian market left by the Western boycott. The India-Russia agreement, if executed, would be the first open departure from the dollar-based system of international trade financing.
The currency swap deal is very important for both the countries and hence Russian Foreign Minister Sergei Lavrov is visiting India this week to discuss the same. The two countries had already decided on the rupee-ruble payment mechanism for the S-400 Air Defence System for the Indian Air Force.