The government of India is expected to announce an agreement with its counterparts in Russia that will allow the countries to continue trading with one another while circumventing Western sanctions on Russia.
In a move that will surely shake up the global economy, the two countries are working on establishing a trade agreement that removes the U.S. dollar from the equation. CNBC reported that in order to continue conducting business with one another, India and Russia are going to implement a rupee-ruble trade mechanism.
This mechanism will eliminate the countries' reliance upon the SWIFT telecommunication network to conduct trade with each other, and it will provide them with an additional layer of security that prevents Western nations from meddling in their business affairs.
The rupee-ruble trade mechanism would also allow India to continue buying Russian energy exports when many global leaders have forbidden its import.
Dr. A Sakthivel, president of the Federation of Indian Export Organizations, said that the Indian government is working on a proposal to allow "four to five nationalized Indian banks" to be engaged directly in trade with Russia. He said that the country's central bank governor and the finance minister have been in conversations with the banks to get lay the groundwork for the rupee-ruble mechanism.
Sakthivel suggested that the Western sanctions placed on Russia provide Indian exporters with an opportunity to grow their presence in the Russian market.
He said, "Export to Russia is not much, only in agriculture and pharmacy products. Now that the whole of the West is banning Russia, there will be a lot of opportunities for Indian firms to enter Russia."
Despite making logistical sense, India's move runs the risk of angering Western nations with whom the South Asian country still does business.
The United States, for instance, is India's largest market for exports. According to official government data, in 2021, the United States bought $71 billion worth of goods from India.
Conversely, Russia imported a measly $3.3 billion worth of goods from India in the same year. Most of these purchases were pharmaceutical products and exotic regional beverages like coffee and tea.
Historically, India and Russia have had a close relationship, and in an era of heightened geopolitical tension, it is unlikely that the Indian government is going to stop importing 85% of its military equipment from Russia or Russia's close allies.
That said, India's official stance of neutrality on the Russian invasion of Ukraine has angered its Western allies, and strengthening its economic relationship with Russia runs the risk of eliciting Western retaliation.
Sakthivel said, "The government will take into account all the factors. The government is playing it very carefully."