Russia and India Drop All US Dollar And Euro Use In Bilateral Trade & Settlements

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Bilateral trade set to boom in 2023-24 as numerous export multipliers come into the trade picture 

By Chris Devonshire-Ellis      

Russia and India have agreed to drop all use of the US dollar and Euro in bilateral settlements, according to a statement made by Zamir Kabulov, a Director of Russia’s Ministry of Foreign Affairs.

According to Kabulov, the transition to national currencies is a fundamental decision, while there is a need to maintain balance, as the sales volume of Russian products to India is five times higher than that of India to Russia. How this decision is made will affect the Russian economy, increase the global process of de-dollarization and impact Russia-India trade turnover.

A mutual decision to refuse US dollar and Euro trade with Russia is considered a necessary measure by New Delhi because otherwise, conducting financial transactions with Russian companies and banks have become impossible or extremely difficult due to sanctions.

In addition, it is financially risky for Russian exporters to keep proceeds received from sales in hard currency due to the risks of blocking. However, the rupee is only a partially convertible currency , which has so far made it unattractive for use in foreign trade settlements, although this is starting to change. Six Indian banks has now received permission from the Indian government to open correspondent accounts in rupees by Russian banks to facilitate bilateral trade and arrange Rupee-Ruble ‘Vostro’ account transactions.

Russia-India 2023-24 bilateral trade growth potential

Russia and India’s bilateral trade turnover is also growing rapidly, up about 120% on 2021. This can be expected to continue – India is currently negotiating a Free Trade Agreement with the Eurasian Economic Union – a deal that includes Russia.

Bilateral trade growth however is not just a result of cheap oil purchasing due to the Ukraine conflict. At the end of 2021, growth was already running at 46.5% in non-oil trade – although India has now become one of the main destinations of Russian oil exports, it previously occupied a very small share of Russia’s oil exports.

But oil has helped open up other doors. Russian oil supplies pass through India’s West coast Gujarat state, where the Vadina refinery and the port are located. One of the main areas of cooperation is in energy security, with Russia’s Rosneft acquiring 49.13% of the local oil refinery, prompting growing deliveries of Russian oil due to the favorable location of the refinery. More than 70% of India’s imported oil comes via Gujarat, meaning cooperation is increasing: the development of oil refining and petrochemistry, and access to the re-sale markets of the Asia-Pacific. Cooperation in this area will open doors for related Russian industries. Gujarat is also the home state of the current Indian Prime Minister, Narendra Modi.

Other subsidiary industries are also taking off here – Indian and Russian shipbuilders are constructing new tankers, some of them with Arctic capabilities, again at the Gujarat shipbuilding yards, and cooperating in the leasing and construction of large bulk crude carriers.

These developments will undoubtedly influence Russia-India trade, but how much? Andrey Stolyarov, Deputy Head of the Department of Financial Markets Infrastructure at the Higher School of Economics in Moscow has stated that according to the results of the first half of the year, the trade turnover between Russia and India grew to US$11 billion, while there were already plans to increase this to US$30 billion by 2025. This growth is taking place against the background of India becoming the largest country in the world by population, and has great needs for the export of Russian energy resources and other products. India has also not agreed to abide by Western sanctions against Russia.

Rohit Kapur, Managing Director of Dezan Shira & Associates New Delhi office handling Russian investors into the country, states that 2022 saw a significant increase in Russian investors to India. Russian clients may establish bank accounts if based in Delhi, while improved trade connectivity such as from India to Russia via the INSTC will also be a trade driver during 2023-24. A FTA is on the agenda. It has become easier for Russian traders and businesses to establish Liaison Offices in India, while the Indian middle-class consumer market is growing at a fast pace, he says.  India’s Business Standard confirms this view, saying that India’s middle-class reached 31% of the total population in the fiscal year 2021-22, about 500 million people. The number of “super rich”, on the other hand, has risen to 1.8 million in 2020-21. Maharashtra was India’s richest state, followed by Delhi and Gujarat.  The fundamental impact on the economy of Russia will be the growth of opportunities for exporting its products to other countries, including India.

Dealing with the Russia-India trade imbalance

There are problems with the existing Russia-India trade structure of trade, which shows a significant excess of Russian exports over Indian ones. Under these conditions, the question arises: what to do with the Indian Rupees? The two countries are trying to strike a balance. In the past, Russia’s current account surplus was invested in foreign assets mainly in hard currencies. However, many of these assets have now been frozen overseas, meaning this is now a risk. It is also unlikely that there will be enough highly liquid and reliable financial assets in the financial market of India to be acquired due to the excess of received rupees. In addition, over the past five years, the rupee has fallen by about 30%. in value. Partially, this problem could be solved through an increase in the import of goods to Russia from India, as well as through an increase in Russian business investment in Indian real assets. This is unlikely to be done quickly, but primary locations such as the golden beaches of Goa may start to attract Russian real estate developers.

The two countries will strike a balance. All this makes the prospects for trade with India good, although India will not be able to replace China as a foreign trade partner in the near future. But the share of Rupee in trading on the Moscow Exchange will increase as currency swaps will be required.

Various other schemes are being tried: both Russia’s SPFS (financial messaging system), which allows transfers to bypass sanctions restrictions, and the introduction of the Russian MIR card system could be utilized.

Western pressure on India 

India will of course face pressure from the United States and European Union and attempt to discourage trade with Russia. However, New Delhi is also resistant to pressure and can see that eventually, even with its own trade, Washington could try and interfere with its growth once it starts to tread of US manufacturing toes, as it did with China trade tariffs. Delhi has already faced sanctions threats  from the United States.

But all this does is make New Delhi want to get away from settlements in dollars and euros, and therefore makes de-dollarization a national strategic goal. Currently, every payment in dollars, euros, pounds go through correspondent accounts in banks of “unfriendly countries”. That is, any payment can be blocked, which is why it is so important for countries such as India to be able to make payments in the currencies of more friendly countries.

In any event, the use of the US dollar and the Euro in foreign economic activity is decreasing as a result. The share of the dollar in the global trade decreased by 40%, and the Euro by 30% in 2022. Growth calculations are in alternative currencies, including the Chinese Yuan, Turkish Lira, Iranian Rial, Indian Rupee and other national currencies.

Russia’s foreign exchange reserves held overseas, have been frozen, with Russia converting new foreign reserves into national currencies that are easier to control. From the Russian perspective, the reduction of US dollar use is proceeding rapidly, trade in rubles, Indian rupees, yuan, national currencies of the CIS countries with the corresponding states is growing. This is not typical for all sectors of the economy, because there are ultra-conservative areas where transactions are made only in dollars or euros. However, the process is up and running.

Other Nations Following India’s Lead

Using India’s rupee to trade is being taken up by other countries. Sri Lanka has also agreed to use Indian Rupees to trade with Russia, with Sri Lankan banks also reportedly opening special rupee trading account called – Special Vostro rupee accounts, or SVRA – for trading in INR.

It comes days after the Government of India said it is looking at ways to bring countries that are particularly short of dollars into the ambit of Indian rupee trade settlement mechanism. The Central Bank of Sri Lanka (CBSL) said it is waiting for RBI’s (Reserve Bank of India) approval to designate the Indian rupee as a foreign currency of Sri Lanka.

A severe economic crisis and US dollar crunch have been weighing on Sri Lanka for almost a year. Designating the Indian rupee as a legal currency will provide the island nation with much-needed liquidity support. With the opening of Vostro accounts, people in Sri Lanka can now hold USD 10,000 (Rs 8,26,823) in physical form. Also, Sri Lankans and Indians can use Indian rupees instead of US dollars for international transactions between each other. Since July this year, the Indian government has been looking to bring countries that are short of dollars, into its rupee settlement mechanism. Sri Lanka is also wanting to buy inexpensive Russian oil and this structure will assist.


Despite the problems imposed by the West’s sanctions, it appears that in terms of trade with friendly countries, Russia’s ability to circumnavigate these is growing. With that, major economies such as India – which is on track to become the world’s third largest economy by 2027, surpassing Japan and Germany, and have the third largest stock market by 2030, thanks to global trends and key investments the country has made in technology and energy. That latter part of the growth projections are key to its relationship with Russia. India’s energy needs to power its development are running at rates of 3% per annum in India’s Stated Policies Scenario (STEPS) from now until 2030, according to the IEA. Russia is instrumental in this – meaning trade doors will continue to open as Russia is also looking for new markets to replace Western consumers.

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