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Exporters to Russia in trouble because the Sberbank levy increases costs

NEW DELHI : Indian exporters are witnessing an increase in the cost of shipping goods to Russia, with the state-run Sberbank charging a 4% premium to settle these transactions, said several people who were aware of the case, at a time when India’s trade deficit with Russia has exploded.

The move becomes significant because Sberbank, Russia’s largest lender that remains outside of Western sanctions, is one of the few Russian banks that has agreed to settle rupee trading.

To address these concerns, the Reserve Bank of India proposed a rupee settlement mechanism for trade with Russia in July; however, the mechanism has yet to come into effect.

Banks are not sure how the rupee-rupee trading scheme works, said Arun Kumar Garodia, chairman of the Engineering Export Promotion Council of India (EEPC). “Some Russian banks, as well as Indian banks, have agreed to settle trading in the rupee, but not all banks are on board. Their main bank is Sberbank and they agreed to pay in rupees. But now exporters are in trouble because their website says an additional 4% premium will be charged, making trade more difficult,” Garodia said, adding that state banks at least recognize exports to Russia, but private banks not even issue a Bank Realization Certificate (BRC), which acts as confirmation that the exporter has received payment for the export of goods from the buyer.

Without a smooth transaction mechanism and the fear of Western sanctions, Indian exports to Russia fell by about 24% in the April-August period.

At the same time, Russia has become one of India’s most important sources of energy, surpassing even traditional suppliers Saudi Arabia and Iraq.

“Russians need hard currency, and that would pose a problem when shifting to rupee trading,” said Biswajit Dhar, a professor at the Center for Economic Studies and Planning, School of Social Sciences, Jawaharlal Nehru University. because of the trade deficit. Apart from that, the exchange rate has been an issue, which has also led to disagreements in the past. With the current trade imbalance, the settlement mechanism of the rupee is difficult. Moreover, the trade gap is widening as Indian exporters are afraid of being hit by sanctions-hit Russia,” Dhar added.

Ajay Sahai, director general of the Federation of Indian Export Organizations (FIEO), said some exporters reported the high conversion fees levied by some banks in the rupee-ruble trade.

“However, such transactions are not covered by the new rupee payment mechanism notified by the RBI on July 11, 2022. The mechanism designed by the RBI involves trading only in the Indian Rupee, eliminating exchange rate risk. As some banks have linked up with their counterparts in Russia with corresponding banking relationships and DGFT has clarified the availability of full export benefits for such transactions, we expect the same to be up and running in about a week,” he said.

Questions to the Ministry of Commerce, the Russian Embassy in India and Sberbank went unanswered until it went to press.

Currently, trade between India and Russia goes through 12 or 13 small Russian banks, which are not on the sanctioned list, and they transfer payments from the Russian side to the Indian exporters’ banks in dollars, according to one exporter. He added that while public sector banks credit the payments to the exporters’ accounts and give the BRC, private sector banks do not.

Exporters who settle their trade in rupees can take advantage of export incentives or excise duty rebates following foreign trade policy changes made by the DGFT last week. The move is intended to encourage exporters to boost shipments to countries like Russia. Negotiations are also reportedly underway with other countries, including Cuba and Sudan, to settle the trade in rupees.

Shipments from India to Russia could grow by an additional $5 billion once the rupee clearing mechanism becomes functional, according to a study by FIEO.

The study further shows that agricultural products, food, pharma and technical equipment are the key areas where India could see a boost in exports to Russia. With supplies from the European Union coming to a near halt, especially for industrial and tech goods, this could be a big opportunity for India, it added.

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