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India’s trade ministry acts to cut ballooning trade deficit with Russia, reaches out to EPCs: Sources

Discounted crude oil has constituted a large portion of India’s imports since last year. OPEC made up for as much as 90 per cent of all crude oil India imported at one point of time, but this has been sliding since Russian oil became available at a discount in the aftermath of Moscow's invasion of Ukraine in February last year.

May 11, 2023 / 16:22 IST
Almost two-thirds of India's imports from Russia consist of crude oil as it diversified from more expensive Middle Eastern crude following the invasion of Ukraine.

The commerce ministry has stepped in to cut India’s ballooning trade deficit with Russia, asking all Export Promotion Councils (EPCs) to identify additional products India can sell to Russia to expand its own exports, sources said.

India’s trade deficit with Russia reached $34.79 billion between April 2022 and January 2023, helped by India’s purchases of Russian crude oil, according to government data.

Russia, which was India’s 25th largest trading partner in FY22, has now risen to be the second, behind only China.

“We are looking at having some balance in trade with Russia. We need to increase our exports. India is looking to push exports of textiles and agricultural products to Russia. All Export Promotion Councils have been notified to identify the potential of India’s exports,” a senior government official told Moneycontrol.

India’s merchandise imports from Russia increased by 369 percent to $46.3 billion in 2022-23 from only $9.87 billion in 2021-22 with almost two-thirds consisting of crude oil as it diversified from more expensive Middle Eastern crude following the Russian invasion of Ukraine.

In contrast, in 2021-22, India's imports from Russia were worth only $9.86 billion. In just a year, Russia has become India’s fourth largest import source from being the 18th largest in 2021-22.

“Export Promotion Councils have been asked to explore possibilities, analyse potential and understand what products are required to be exported to Russia,” the official cited above said.

Last month, delegations from the Export Promotion Councils delegations visited Russia to understand the Indian goods that have the potential for export to Russia.

Rupee trade

A trade settlement mechanism in rupee was used to facilitate trade between the two countries, following sanctions on Russian banks for using the international SWIFT messaging system for selling payments. The Reserve Bank of India on July 11, 2022, permitted invoicing and payments for international trade in Indian currency.

The official cited above said that although India is promoting rupee trade with Russia, in order to boost exports to the country, exporters are free to trade in whichever currency is convenient to them.

“Rupee trade is happening. We are promoting rupee trade with Russia. But exporters should trade in the currency convenient to them,” he said.

Russian Foreign Minister Sergei Lavrov recently told reporters during the Shanghai Cooperation Organization (SCO) meetings that his country had accumulated billions of rupees in Indian banks due to its increasing trade surplus, which is an issue.

“We need to use this money. But for this, these rupees must be transferred in another currency, and this is being discussed now,” he said.

Discounted crude oil has constituted a large portion of India’s imports since last year. OPEC made up for as much as 90 percent of all crude oil India imported at one point in time, but this has been sliding since Russian oil became available at a discount in the aftermath of Moscow's invasion of Ukraine in February last year.

Russia has continued to be the single largest supplier of crude oil, which is converted into petrol and diesel at refineries, for a seventh straight month by supplying more than one-third of all oil India imported.

From a market share of less than 1 percent in India's import basket before the start of the Russia-Ukraine conflict in February 2022, Russia's share of India's imports rose to 1.67 million barrels per day in April, taking a 36 percent share.

According to energy cargo tracker Vortexa, India imported just 68,600 barrels per day of oil from Russia in March 2022 and this year the purchases have jumped to 1,678,000 bpd.

Meghna Mittal
Meghna Mittal MEGHNA MITTAL is Deputy News Editor at Moneycontrol. Meghna has experience across television, print, online and wire media. She has been covering the Indian economy, monetary and fiscal policies, Finance and Trade ministries. She tweets at @Meghnamittal23 Contact: meghna.mittal@nw18.com
first published: May 11, 2023 01:11 pm

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