NEW DELHI: In what is expected to provide a major boost to the India-Russia trade, VTB – Russia’s second largest bank – has now launched a mechanism to receive direct payments in Rupees ditching the conventional mechanism involving Dollars and Euros. With this, Russian SMEs will now be able to transact in INR, thus simplifying the payments while dealing with their Indian trading partners. The move comes even as New Delhi and Moscow are working towards addressing the trade imbalance between the two nations.

In December, the Russian Foreign Ministry had said that the transition to transacting in national currencies was necessary in order to address the trade imbalance between the two countries. In November, during his visit to Moscow, India’s Foreign Minister S Jaishankar had expressed concern over the decreasing Indian exports to Russia.

It may be noted that India’s imports from Russia, which increased multi-fold in the aftermath of the Russia-Ukraine crisis, are five times more than India’s exports to Russia. The India-Russia trade, which stands at $27 billion, is fueled primarily by the Indian imports of coal, oil and fertilizers.

Transactions in national currencies is a challenge, given that the country with higher exports, ends up accumulating more currency of the importing nation. While speaking at the Russia-India business dialogue, Pavan Kumar, India’s ambassador to Moscow had said that the Russian companies could use Rupees in Russian banks to import goods from India, thus reducing the accumulation of Rupee in Russian banks.

The diplomatic ties between India and Russia were put to test during the Russia-Ukraine conflict, in which the western side urged India to be on the ‘right side’ of history. India’s diplomatic machinery, however, walked the tightrope in ensuring the balance between New Delhi’s ties with Moscow and its relations with the western nations.