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Russia and India plan to drop all use of the US dollar and the euro in bilateral settlements and conduct all trade transactions in rupee and rouble, a senior Russian official has said.

Zamir Kabulov, head of India division in Russia’s ministry of foreign affairs told Russia’s state-run news agency RIA Novosti that the decision is necessary to address the trade imbalance for a full-fledged transition to national currencies.

Currently, India imports five times more from Russia than it sells back. To address the trade imbalance, India will expand its exports to Moscow based on the list of items demanded by the latter.

India’s foreign minister S Jaishankar during a visit to Moscow last month discussed with Russian counterparts the matter of increasing Indian exports.

India-Russia trade imbalance

In the aftermath of the Russia-Ukraine war, New Delhi’s trade with Moscow has increased manifold on the back of surging energy imports and other items like fertilisers, coal, coking coal among other commodities. Bilateral trade increased to USD 27 billion during the year mainly due to India’s large-scale imports of oil and fertilisers from Russia.

India’s ambassador to Moscow Pavan Kapoor, while speaking at the Russia-India business dialogue, said Russian businesspersons look at India as the main source of their activities to make trade between the two countries more balanced.

Why switching to rupee-rouble settlements is not feasible

He added that the two sides are conducting transactions increasingly in national currencies, but for that trade needs to be balanced, otherwise one side accumulates more than the other. The two countries will continue to work to find a solution to the problem.

Pavan suggested that Russian companies could use the rupees accumulated by Russian banks in India to import more goods from India and invest in manufacturing backed by the production-linked incentive scheme.

Completely switching to rupee-rouble settlements without addressing the trade imbalance issue would mean an accumulation of rupees with Russian banks.