1. Trade in local currencies
With reference to India and Russia

2. Trade settlement in local currencies
With reference to India and Russia

3. Why cross border transactions
Countries may not be self sufficient
Even if sufficient, may not be efficient
Even if sufficient and efficient, locational advantage may not be there
Land, labour, capital, inputs
Even if all factors favourable, there may be Governmental requirements

4. Factors in cross border trade
Minimum two parties
Consideration
Funding
And channel for movement of funds
Ownership
And channel for movement of ownership
Local / global / glocal rules
Currency

5. Why currency is important?
Local currency always preferred
Not possible, why???
International currency
Risks associated???
Why not adopt an international currency???

6. International currency
Freely available
Freely exchangeable
Freely accepted for settlement of claim
Limitation
Cost
Risk
Effects on economy
Unilateral action

7. Then why not settle trade in local currency?
Advantages
Comparative advantages vis-à-vis
Cost
Risk
Effects on economy
Unilateral action
But there are limitations too:
Availability
Exchangeability
Acceptability for settlement of claim

8. Then why not settle trade in local currency?
Exchange rate
May have to linked with a hard currency
INR to Dollar to Rouble and vice versa
Whether fixed exchange rate or floating exchange rate
If rate of depreciation of one currency is more than that of the other currency
Limits the acceptability for settlement of claim

9. Then why not settle trade in local currency?
So what is equally important
Size of economies
Strength of currencies
Synergies in trade
Reciprocity and compatibility of the financial infrastructure

10. Trade between India and Russia
Share of India’s exports to Russia to total exports of India has been relatively small at 0.6 percent
India’s exports to Russia
Include Engineering goods, Drugs and Pharmaceuticals, tea and Organic & Inorganic Chemicals
Share of Indian imports from Russia to total imports of India has been around percent during to
The major items of India’s imports from Russia include
Defence items, Pearls, Precious & Semi-Precious stones; Non-Ferrous Metals; Fertilizers; Iron and Steel and also petroleum, crude and products.

11. Trade between India and Russia
( US $ million)
Year
Export
Import
Trade Balance
2120.4
3895.7
(-7.7)
(-7.9)
2097.3
4239.8
(-1.1)
(8.8)
1589.9
4580.3
(-24.2)
(8)
APR-JAN
1303
3825.4
(-26.8)
(5)
APR-JAN
1543
4215.4
(18.4)
(10.2)

12. Arrangement between India and Russia
Corpus maintained with RBI
(account of Bank of Foreign Economic Affairs or BFEA, now known as Vnesheconombank)
Credits in the form of loan from erstwhile USSR and import payment by Indian entities
Debits in the form of loan repayment and payment to Indian exporters to Russia
Current outstanding is INR 1,23,024 lakh crore

13. Arrangement between India and Russia Data out of Vnesheconombank’s account
Items/
Calendar Year
2013
2014
2015
2016 (Jan 1 - Aug 12)
Debit / Export
₹ 57223,45,891
₹ 60544,34,259
₹ 21261,79,946
₹ 23188,70,487
Credit / Loan
₹47288,50,842
₹ 59759,67,060
₹ 46616,46,675
₹ 51960,89,386
Balance
₹78781,36,195
₹ 77996,68,996
₹ ,35,725
₹ ,54,624

14. Arrangement between India and Russia Data out of Vnesheconombank’s account

15. Arrangement between India and Russia Data out of Vnesheconombank’s account
2017
In lakh crore
Opening balance
₹ 1,25,285
Debit
₹ 50,463
Credit
₹ 48,202
Balance
₹ 1,23,024

16. Arrangement between India and Russia
Whether the system could be more efficient?
Are the funds remaining idle?
Whether the beneficiary is willing to receive the payment in its currency instead of freely convertible / currency of the invoice/ contract
Volatility in the currencies
Availability and cost of hedging instruments
Roles of Central Bank and commercial banks