In an exclusive interview with The Sunday Guardian, Dr Ajay Sahai, DG & CEO, Federation of Indian Export Organisations (FIEO), talked about a host of issues. Excerpts from the interview:
Q: How do you assess the rupee trade settlement mechanism?
A: Rupee trade is an additional mechanism, besides the existing one, carved out by India to promote bilateral trade and this is open for every country whosoever is willing to join. Until now, the approval has been given to Russia, Sri Lanka, and Mauritius. In effect, that means we have a tie-up with an Indian bank and corresponding bank in those countries. For instance in Russia we have 12 Indian banks and 19 Russian banks who already have a tie up for the Vostro account. In Sri Lanka we have 3 Indian banks and around 5 Lankan banks and for Mauritius there is one Indian bank and one Mauritius bank, of course they are entity of State Bank of India. There are other countries who are showing interest in joining this arrangement.
The idea is that there are countries which have restriction in using the normal banking payment. It may be on account of sanctions, it may be on account of the fact that they have huge shortage of foreign exchange or they have huge problems in managing foreign exchange and countries willing to deal with India in rupee. Some of the countries feel that once they switch over to the rupee, their bilateral trade may go up and some of the oil countries are probably showing interest in that respect. These countries may feel that India is a better investment option. They may come forward on that account because with oil countries we have adverse trade balance. So the rupee balance will always be in their favour.
Q: How does this benefit them?
A: Well, in the rupee transaction, we have said that rupee can’t be taken back. It has to be invested in India, maybe government security or maybe in companies. So for countries which want to invest in India, this is a better option. So as of now this arrangement is operational for these three countries and for others they are being discussed at a different level. But it is open to all who want to come into this mechanism. We are exploring with Cuba, Bangladesh, Saudi Arabia and UAE have all shown interest.
The logic is that as a country I have not much to lose. First of all a corpus has to be created in rupees. That means some of the import which I am doing in foreign currency will go into rupees. So I will be save that much of foreign currency and then I will not be earning an equivalent amount of foreign currency when I am exporting. But at any given point of time it will not exceed what I have imported. So assuming that my import initially is happening for USD 100, I am saving USD 100. By exports I may be getting less than that. So in any case I am not a loser. So from India’s perspective it is a win-win situation.
Now however, there are countries that feel that once they move to rupee trade, the exchange fluctuation is taken care and once that happens, probably import may increase from those countries. So these countries are willing to come under the rupee mechanism.
Q: Is the arrangement working out smoothly?
A: There are exporters who have opened bank accounts but we have not seen any actual operations so far. Somebody first has to import in rupee. Take for instance the case of Russia which feels that while it is already supplying oil at a discounted value, why shouldn’t it be paid in euro or any other currency. So they may hesitate to come to rupee because in any case it is giving a discount. Russia has a peculiar problem. The country has supplied a lot of oil to China also and China, to promote the yuan, gives a discount of premium when they are trading in the particular currency. With the result that Russia has a lot of yuan with them and now they want to use that Yuan also. Some of the exporters whom we talked to, pointed out that their buyer wanted that the former take payment in Yuan, not the rupee. The other issue is that with the non-sanctioned bank there is no problem to deal even in dollar. So the normal route of dollar/euro is available. Probably the rupee route would have been the more successful had the other option dried up. But since the other options are moving in paralle, there is little less enthusiasm for rupee trade as of now.
Q: Do you see the situation changing?
A: We hope that. If you look into the last seven months India has imported oil worth USD 25 billion from Russia. Even if 20 per cent of that moves into rupee, we will have USD 4-5 bn reserve in rupee. Once that happens, probably importers will be more encouraged to buy from India. Because they have to utilise that rupee. So that is the situation as of now for this rupee trade. We hope that matters will move. Though earlier RBI had approved the special Vostro account, the banks have not tied up with each other. Then some of the banks initially were saying that the exporters should have an account in that bank then only we will allow the account to be used. The IBA, RBI intervened and said that there was no need for exporters to have an account. Exporter bank will simply give the document for the individual to do the negotiation. So all these issues have been clarified now. And so we expect that to start.
But for me the starting point would be the import first. It is a call that Indian importers have to take, to switch over some of the imports from any currency to rupee to create a corpus for Indian rupee payment to start with. It is a call which oil companies have to take. Because if you leave out oil and fertiliser there is nothing substantial which we are importing from Russia. Out of the total import of USD 29 billion from April to November 2022, USD 25 billion was oil and around USD 2 billion was fertiliser. So if either of these two commodities, oil — in my reckoning — can move to rupee, maybe by PSUs or maybe by private companies, that would click and then we will take it forward.
Q: What is the status of trade with Russia?
A: Our Russia imports are going up by leaps and bounds but exports have not picked up though of late we have seen some little improvement. Because once we started the year, may exports were down by 8% or so. But when I am comparing up to November figure, export is down by 16-17%. Once rupee payment starts we can look forward to substantial export to Russia.
Q: What are the potential areas where this rupee trade can expand?
A: Probably diamond. We talked to some of the companies which are major suppliers from Russia and we told them that why don’t you also look into this rupee mechanism because you can have investment in India with a buy back arrangement since Russia is a readymade market for finished gems and jewellery also. Same is the case for pharma. There is lot of demand for Indian pharma so we have suggested supplying some of the inputs to India in rupee and then keeping that rupee for investments in pharma companies, have a buyback arrangement. You can take the production in Russia also for the supply.