Ajit Karn
India has requested that Chinese yuan not be used to pay for Russian imports, according to three policy-making government officials and two banking sources. This is due to India’s long-standing political differences with its neighbour.
According to three government officials, India, which has become a leading purchaser of Russian oil and discounted coal, would favour the use of United Arab Emirates dirhams to resolve trades.
One of the directly involved government officials stated that New Delhi is “not comfortable” with foreign trade settled in yuan, but that settlement in dirham is acceptable.
The second official stated that India cannot permit settlement in yuan until bilateral relations improve.
At the Line of Actual Control, clashes between Indian and Chinese personnel have exacerbated tensions between the two countries.
The five officials did not specify whether India’s reluctance to accept yuan settlement was also motivated by economic factors.
Last year, India’s largest cement producer, UltraTech Cement, paid in Chinese yuan for a shipment of Russian coal, which prompted some concerns among officials given the deteriorating relationship between India and China in the wake of fatal border clashes in Ladakh’s Galwan Valley in 2020.
Following the UltraTech transaction, the government examined the situation with central bank officials and bank executives, according to the second official.
Two banking officials with knowledge of the situation reported that the Reserve Bank of India (RBI) is not enthusiastic about foreign trade settlement in yuan and that the government has discouraged them from using the currency.
They also stated that Russia is interested in yuan settlement because it facilitates their procurement of Chinese products.
According to Reuters, Indian refiners have begun settling some Russian oil purchases in roubles in recent weeks. State Bank of India’s nostro roubles account in Russia has processed a portion of these payments.
However, the majority of trade is still conducted in other currencies, as the rouble is only partially convertible and the two nations have yet to finalise a framework.
As discussions were private, all five officials declined to be named. The foreign, finance, and RBI ministries did not respond to requests for comment.
In the future months, the government expected the preponderance of payments to Russia to be made in dirhams, according to the first official.
India has long-standing political and security ties with Russia and has refrained from condemning the Ukraine conflict, which Moscow refers to as a “special military operation.”
India is also a significant purchaser of Russian munitions.
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Reuters reported last month that Indian refiners have begun paying for the majority of their Russian oil purchased from Dubai-based merchants in dirhams rather than U.S. dollars.
India’s rupee is partially convertible, meaning it must first be converted to U.S. dollars before being converted to any other currency. This makes it an unattractive reserve currency for global central banks and for resolving international trade.
It also discourages Russia from accepting Indian rupees as payment for its exports.
