The US trade and economic sanction against Iran and Russia opens an opportunity for the country to explore the possibility of trading in Rupee not only with these two countries, but also with other likeminded nations, including Venezuela, Indonesia and, even, China. India is among the world’s top 10 importing countries. Cumulative value of imports for the period April-March 2017-18 was US$ 459.67 Billion (Rs. 2962897.70 crore). India is the world’s third largest oil importer, after China and the US. India is also the world’s third largest coal importer, after China and Japan. Among top 10 exporters to India, China ranks No.1, followed by the US, UAE, Saudi Arabia, Switzerland, Indonesia, Korean Republic, Germany, Iraq and Australia.
According to Petroleum Minister Dharmendra Pradhan, Iraq overtook Saudi Arabia for the first time to become India’s top crude oil supplier in 2017-18 fiscal, helped by sales of discounted heavy crude. Saudi Arabia traditionally has been India’s top oil source but in the April-October period of 2017-18, Iraq dethroned it, supplying 25.8 million tonnes of oil. For the second year in a row in 2017-18, Iran was the third largest supplier to India by selling 12.5 MT oil during the period. Among the measures being contemplated by the government are: partial or full rupee trade with Iran and Venezuela for oil, with Russia for gold and diamond, and a Rupee-Renminbi trade with China. If implemented, they will certainly control India’s current account deficit (CAD) and help stabilise Rupee.
Iran was India’s second biggest supplier of crude oil after Saudi Arabia till 2010-11 but western sanctions over its suspected nuclear programme relegated it to the 7th spot in the subsequent years. Venezuela is India’s fourth largest supplier of crude oil, followed by Nigeria. India is over 80 per cent dependent on imports to meet its oil needs. After the western sanctions on Iran lifted in 2015, Indian refiners raised their purchase from Iran. Now, the fresh US sanction on Iran threatens to increase India’s dependence on Saudi Arabia for oil import. However, India can bypass the US sanction by returning to Rupee trade with the Persian Gulf nation. China, a major importer of Iran oil, is unlikely to be afraid of the US sanction. If India goes for Rupee trade with Iran and Venezuela, it can reshape its oil import sources and change the picture of the US$ linked current account deficit (CAD). Indirectly, such a trade will also help stabilise Rupee’s exchange value vis-a-vis US$.
Given the strength of India’s economy today, in terms of its size and GDP growth rate, the country should not find it too difficult to have bilateral trade partners willing to deal in local currencies. With Russia, Indian companies are ready to make payments in Roubles to get around the US sanction. Indian businesses are reportedly working out alternate payment mechanisms for trade with Russia, including payment in Roubles via foreign branches of Russian banks, to get around the US-imposed sanctions on that country. Actually, this followed a successful pilot under which Russian diamond miner Alrosa accepted payment in Roubles from an Indian diamantaire. Alrosa is said to be extending the mechanism to five of its clients who are in the process of opening accounts in Russian state lender Sberbank’s branch in India.
Currently, all diamond purchases are done in US dollars. India is a hub for cutting and polishing of diamonds, while Russia has huge diamond reserves. Around 16 percent of the company’s sales directly go to India, which accounts for more than half of Alrosa’s diamonds sales. The company has 65 long term clients for all markets of which 15 are in India. Gems and jewellery trade experts say the payment in Roubles is part of the larger picture and not because of the US sanctions only. This is in India’s interest because there is no foreign exchange loss when the payment is made directly in Russian currency.
Being one of the top 10 global importers and its domestic economy showing the highest growth rate, India would do well to go for bilateral trade for mutual benefit of trading partners. Trade shortfall puts pressure on current-account deficit, a key vulnerability for any economy and one of the reasons why Indian Rupee is among the worst-hit in Asia amid an emerging-market rout, this year. Rupee’s exchange value is dropping almost on a daily basis. Lately, the collapse of Turkey’s Lira has further hit investor sentiment, taking the slump in India’s currency down to almost 10 percent this year.
Every Rupee depreciation in the exchange rate against the US$ impacts India’s crude-oil import bill by 108.8 billion Rupees ($1.58 billion), according to the petroleum ministry. Recently, India discussed the possibility of trading oil with Russia, Venezuela and Iran either in Indian Rupees or under a barter agreement. According to the department of commerce and industry, Suresh Prabhu, the minister, held a meeting to discuss the “stepping up of local production of goods across key sectors, to increase domestic availability and promote economic growth and export capacity”. The attendees at the meeting also talked about the possibility of creating a Rupee-Yuan payment mechanism for trading with China, and discussed accepting “any country’s proposal that is willing to trade in Euro and Rupee.”
India’s idea to use Rupee or a barter system in its oil trade with Russia, Iran, and Venezuela comes as the US sanctions on Iran draws near and are just a few weeks away. The rallying oil prices and plunging Indian currency is further straining the finances and the oil import bill of the world’s third-biggest oil importer and Iran’s second-largest oil customer after China. It may be time to exploit India’s growing economic strength to promote a Rupee trade wherever feasible. (IPA Service)
The picture is taken from the Internet.
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