India has asked Russia to ease non-tariff barriers, especially on marine and agricultural products, and keep rupee trade afloat as a precursor to opening free trade agreement (FTA) talks with the Moscow-led Eurasian Economic Union (EAEU), a government official said.
During talks in August between India and the EAEU, India flagged Russia's non-tariff barriers (NTBs), which it said were impacting its exports and worsening the trade deficit, making rupee payments for Russian oil difficult, the official said.
Armenia, Belarus, Kazakhstan and the Kyrgyz Republic are the other members of EAEU along with Russia.
“Now that there is momentum and there is a desire, more so from their side, to do an India-EAEU FTA, we have escalated the issue that unless these NTMs (non-tariff measures) are resolved early, it won’t give us the confidence that trade will increase even if we do a trade deal,” the official said.
According to United Nations Trade and Development, NTMs are policy measures other than tariffs that can potentially have an economic effect on international trade in goods. Though many of them aim at protecting public health or the environment, they also substantially affect trade through information, compliance and procedural costs.
New Delhi is hoping to sustain rupee-based trade by leveraging the proposed deal, which could help boost Indian exports to Moscow, the official said.
India and the EAEU bloc on August 20 signed the terms of reference (ToR) to launch negotiations for an FTA in Moscow. ToR provides a framework for talks.
The step came amid growing trade between India and the EAEU, which stood at $69 billion in 2024, a 7 percent increase over 2023.
India and Russia have also pledged to increase bilateral trade to over $100 billion by 2030 during Prime Minister Narendra Modi's Moscow visit in 2024.
Total merchandise trade between India and Russia was worth $68.7 billion in FY25, a growth of 5 percent on-year.
The yuan conundrum
India’s demand comes amid growing pressure from traders to pay for Russian oil in Chinese yuan, as nearly $60 billion of rupee pile up in Vostro accounts each year due to the widening trade deficit in Moscow’s favour, the official added.
India wants Russia to ease obstacles in listing, compliance requirements and obtaining approvals for agricultural and marine processing or export facilities, the official said.
About 69 marine units await approvals despite efforts to resolve the issue.
“The rupee Vostro account is going to grow and we have to find ways to offset that Vostro account and the only way we can do that is to find ways to increase Indian exports to Russia,” the official said.
A growing Vostro account could make rupee-based trade unviable, with New Delhi having little to offer in terms of exports to Russia, further widening the trade deficit.
A Vostro account is a way to hold money in Indian rupees on behalf of a foreign country, primarily used when nations want to trade without using the US dollar, especially countries like Russia, which face sanctions from the US and its allies.
India’s trade deficit with Russia rose to nearly $59 billion in 2024-25, up 3.5 percent on-year primarily because New Delhi has limited room to export enough to offset its growing oil purchases from Moscow.
While imports from Russia stood at $63.8 billion in 2024-25, India’s exports came in at only $4.9 billion with engineering goods, electronic, marine products and fruits and vegetables among the top outbound shipments.
Russia is losing interest in accepting Indian rupees and instead prefers yuan or dirhams, which it can use to pay for higher imports from China and the United Arab Emirates, the official said.
The oil deficit
India is purchasing Russian oil through a mix of rupees, yuan, and dirhams, the official said, adding exports have to increase to sustain rupee-based trade.
Russia’s deputy prime minister Alexander Novak confirmed this week that India has started settling a small part of its oil imports from Russia in Chinese yuan.
India’s crude imports from Russia account for around 35 percent of its total imports in this category, thanks to discounted prices, up from less than 1 percent before the Ukraine war.
New Delhi started exploring a rupee settlement mechanism with Moscow soon after the invasion of Ukraine in February 2022.
Indian lenders opened special Vostro accounts in Russian banks, including Sberbank PJSC and VTB Bank PJSC, to facilitate overseas trade in rupees and keep crude flowing.
While India and Russia did settle their trade in rupees, the system didn’t take off as hoped, as Moscow accumulated a surplus of billions of rupees as a surge in New Delhi's oil imports led to a ballooning trade deficit.
In September 2023, Russia's foreign minister Sergei Lavrov reiterated that Moscow had billions of rupees stored in Indian banks that "unfortunately cannot be used right now", but India had proposed some ways in which this money can be invested.
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