Can India work out a currency swap trade with Russia?
Alrosa, the world’s largest diamond supplier is willing to offer rough diamonds to 12 of India's diamond processing companies. In addition, with a rupee-rouble currency swap arrangement, the import costs for rough diamonds would come down as it would avoid European middlemen
 
Due to its recent involvement in Ukraine in the past few months, Russia has been lying low in the international political scene because of western opposition and condemnation. There has been hardly any important activity in trade between India and Russia, except for the significant fall in the rouble value against the dollar. And the Indo-Russian trade, which has been dominated by the dollar, has hovered around $11 billion.
 
Because of this fall in value, which has given an edge for Indian imports from Russia, and to work out long term trade strategies, both the nations have been working on designing a new mechanism for rupee-rouble trade.
 
It appears that a currency swap arrangement would be an ideal base to start, which could later on be converted into settlements in both currencies, by some sort of mutual agreement. A working group, according to media reports, is already keen to come up with an appropriate solution during the 2015-16 fiscal.
 
It may be remembered that due to the efforts of Brazil, Russia, India, China and South Africa (BRICS), there is already an established mechanism for rouble-yuan trade.  In due course, it is expected that US dollar dominated trade may find a place in the back burner and the currencies of BRICS may begin to play a significant role in their trade, eliminating the need to bring in the US currency.
 
At the moment, Indo-Russian trade currently involved engineering, agricultural commodities, defence equipment, crude oil and gas as the principal items in the trade basket. Chances are that when the Working Group comes up with its final recommendations, these may include other items that would be of mutual benefit.
 
In recent times, some sparkling news has come from the Russian Diamond trade. It may be remembered that while India is the world's largest diamond processing industry, Russia's Alrosa is the largest supplier of rough diamonds. Until recently, these roughs used to be routed through European channels, from where they would be re-routed to India.  Thanks to Alrosa's recent change of policy, in their willingness to offer rough diamonds to 12 of India's diamond processing companies from the eight companies which had this privilege, import costs would come down by avoiding European middlemen.  The diamond transactions are in US dollars and the recent depreciated rouble value has benefited the importers.
 
India imports 150 lakh carats of rough diamonds every year and Alrosa expects to supply around $700 million worth of these for the next three years.  According to Vipul Shah, Chairman of Gem and Jewellery Export Promotion Council, securing these high quality roughs directly would help increase India's exports in this area.
 
After his planned visit to China, it is expected that Prime Minister Narendra Modi would be keen on meeting the Russian leaders, not only to talk to them about the developments and happenings in the BRICS countries, but also to increase the trade value between India and Russia. After having met the Chinese President, it is likely that there will be a similar summit with the Russian President.
 
(AK Ramdas has worked with the Engineering Export Promotion Council of the ministry of commerce. He was also associated with various committees of the Council. His international career took him to places like Beirut, Kuwait and Dubai at a time when these were small trading outposts; and later to the US.)
  • Like this story? Get our top stories by email.

    User 

    We are listening!

    Solve the equation and enter in the Captcha field.
      Loading...
    Close

    To continue


    Please
    Sign Up or Sign In
    with

    Email
    Close

    To continue


    Please
    Sign Up or Sign In
    with

    Email

    BUY NOW

    online financial advisory
    Pathbreakers
    Pathbreakers 1 & Pathbreakers 2 contain deep insights, unknown facts and captivating events in the life of 51 top achievers, in their own words.
    online financia advisory
    The Scam
    28 Year Of The Scam: The Perennial Bestseller, reads like a Thriller!
    Moneylife Online Magazine
    Fiercely independent and pro-consumer information on personal finance
    financial magazines online
    Stockletters in 4 Flavours
    Outstanding research that beats mutual funds year after year
    financial magazines in india
    MAS: Complete Online Financial Advisory
    (Includes Moneylife Online Magazine)