What Does the Yuan Challenge?

India has been trying to reduce its oil import costs by trading more with Russia in recent years to be less dependent on the US dollar. Trade between the two countries is projected to reach $100 billion by 2030. But the relationship will change after the war in Ukraine in 2022, with India buying a lot more oil from Russia. Russia has benefited from India’s trade imbalance as it saves money by buying cheaper oil from Russia but does not export enough to balance the trade, which is currently at a deficit of $57 billion out of $66 billion in FY24.

The Challenge of Unbalanced Trade

Due to India’s large trade gap with Russia, Russian oil exporters prefer to pay in Chinese yuan rather than US dollars or Indian rupees. This shift is driven by more equal trade between China and Russia, where the yuan is widely used. The Chinese currency (yuan) has become more prevalent in the Russian market, making it harder to use the money around the world.

Efforts to internationalize money

India has slowed its plans to use the rupee more widely due to the reluctance of its trading partners and the rupee’s limited use in offshore foreign exchange markets. The Reserve Bank of India intends to enhance the rupee’s role by launching a scheme in July 2022 to allow it to be used as payment in foreign trade. However, relative to the strong US dollar and rising yuan, the rupee’s volatility and limited use in trade deals remain a problem.

Export challenges to Russia

Indian exports to Russia have been affected by concerns about possible Western sanctions among private banks needed to finance international trade. Most private banks are cautious when doing business with Russia, worried about how working with Russia could affect their operations in the West. Exchanging rupees for rubles is a complex issue that makes it even more difficult to use the local currency for commercial payments.

Future Business Prospects and Strategic Planning

India and Russia are working in several areas to eliminate the trade deficit and promote economic integration. Focus on reducing trade barriers, talk about potential trade agreements with the Eurasian Economic Union and improve cooperation in key sectors such as chemicals, metals and transport planning. The aim is to facilitate and broaden trade between the two countries, possibly overcome existing problems and help both countries’ economies grow.

About India-Russia Trade Dynamics

Trade Growth and Diversification: India-Russia trade reached $11.5 billion in FY22 despite changes in global politics. While the trade partnership used to be mostly on defense, it now includes sectors such as pharmaceuticals, energy and IT.

Energy and Defense Cooperation: Russia is very important for India’s energy security as it sends large quantities of oil and military equipment to the country. In 2022, India made a lot of purchases from Russia, especially at low prices after the war in Ukraine.

Future goals and fiscal strategies: India sends equipment, medicines, tea and other goods to Russia. The two countries want to trade goods worth $30 billion by 2025. They are also considering accepting payments in their own currencies due to the impact of Western sanctions on Russia.

Source

Manas – Helpline for India’s First Toll Free National Anti-Drug