Indian Commerce Secretary B.V.R. Subrahmanyam predicted this week that New Delhi will conduct up to $9 billion worth of trade with Russia and Sri Lanka combined over the next two months, Reuters reported on Wednesday.
“The rupee-denominated sales will be a big, big advantage,” Subrahmanyam told reporters on August 2. “I see in the next two months $8-$9 billion of trade with Russia and Sri Lanka.”
The Indian commerce secretary referred to a decision by the Reserve Bank of India on July 11 to allow importers and exporters to settle trade in rupees. The rupee is the currency of India, Sri Lanka, Pakistan, Nepal, Mauritius, and Seychelles. The decision will facilitate easier trade between India and Russia and India and Sri Lanka because it allows the foreign nations to base their transactions on a currency other than the U.S. dollar.
The U.S. dollar, upon which the U.S. financial system is based, has dominated global trade transactions in recent decades and is often referred to as the “world’s reserve currency.” This label stems from the fact that any economy hoping to conduct meaningful business in the global arena must base relevant transactions on the U.S. dollar.
The Indian Reserve Bank’s decision last month to honor transactions based on the Indian rupee signals that New Delhi is especially eager to conduct trade with Russia, as its economy is currently crippled by U.S.-led financial sanctions imposed on Moscow in response to its latest war with Ukraine. The financial sanctions campaign began on February 24 and continues today, targeting Russian companies and entities. The sanctions are notable for their secondary effects, including disruptions to payment systems and shipping procedures that Russia has traditionally relied on to conduct international trade.
“While Russia’s oil exports have not to date fallen under Western sanctions, some international traders have avoided buying the barrels given the disruption to payment systems and shipping,” Reuters observed on May 25.
“India’s imports from Russia, mainly crude oil, jumped nearly five times to more than $15 billion between the end of July and Feb. 24 when Russia invaded Ukraine, compared to the previous year, according to a source with direct knowledge of the matter,” Reuters reported on August 3.
“But exports fell to $852.22 million from $1.34 billion in the same period, due to the lack of a payment settlement mechanism with sanctioned-hit Russia,” according to the news agency.
India’s expected trade with Sri Lanka over the next two months will likely contribute a small percentage of the estimated “$8- $9 billion” in trade that Subrahmanyam predicted New Delhi would conduct with Colombo and Moscow on August 2. The relatively small island nation of Sri Lanka, located off India’s southern coast in the Indian Ocean, has been in the throes of its worst-ever financial crisis since about early March. Colombo announced a decision to default on its foreign debt on April 12. Sri Lanka’s government said at the time it had requested “emergency financial assistance” from the International Monetary Fund (IMF). The IMF said on June 3o that it had concluded a visit to Sri Lanka as part of its preparation to issue a formal response to Colombo’s economic bailout request “in the near term.”