Why Rupee Ruble trade between India and Russia is difficult?

Let’s start with some background about Indian economy and financial system. 
Contrary to the perception, India is semi closed economy in the sense that foreign individuals can’t open bank account in India. They also can’t invest in Indian stock market directly and can’t buy property in India. So you can understand how closed the economy is!

Then INR (Indian National Rupee) currency is not fully convertible. It means that one can’t freely transfer money anywhere in the world and foreigners can’t open bank accounts in India. There is a limit by RBI (Reserve Bank of India) for Indian residents to transfer money outside India in a financial year. The limit is set at maximum of USD 250,000 per year for any Indian resident which can be allowed to be transferred outside India. This is also one of the reasons that INR is not very volatile like other international open currencies because it is controlled by RBI (Reserve Bank of India) and not by open market. This is the main reason INR can’t become international reserve currency like Chinese Yuan.

This is also the main reason Rupee- Ruble trade is difficult because there is no way to determine the exchange mechanism between these two currencies independently without converting it into USD or Euro and again converting it in corresponding national currency. Now some people will argue that INR is accepted in few countries like UAE, Oman so why is it not accepted everywhere? India’s main export market is middle East, Asia and Africa and since India runs trade surplus with these countries, it’s easier for them to accept INR because then INR would be used by these countries to pay for imports from India. 

India runs heavy trade deficit with Russia as it imports oil and gas, fertilizers, defence items, etc. from Russia whereas exports to Russia is very small. As a result, Russia has accumulated more than USD 40 bn equivalent of INR in Indian bank accounts of Russian companies and Russia is not able to use it. There are many people suggesting that Russia can import more things from India but problem is Indian quality as Russian specifications are much more stricter and difficult as compared to Europe or USA specifications and Indian manufacturers are not able to provide as per those specifications. Besides, many high quality technology and engineering goods and machineries manufactured in India are produced by factories of European or USA companies in India and these can’t be exported to Russia because of sanctions followed by parent EU and USA companies. This is the reason trade balance won’t be achieved in near term and Russia does not want to accept more INR . It has suggested few options to India for payment including Chinese yuan, UAE dirham, etc. but India does not want to use Chinese currency because of geopolitical tensions between India and China.

So what are the solutions for this problem?

As per my view there are few solutions to overcome this problem of payment between India and Russia. 

1. Peg INR to gold or basket of few precious metals. Russian ruble is already pegged to gold to some extent post sanctions. Make payment in gold in a sense that gold equivalent to INR can be transferred to Russian account.
   
   
2. Make a composite new currency index of BRICS in line with DXY (Dollar Index) with weightage of Chinese yuan at 70%, INR at 13%, Ruble and Brazilian currency each at 7% and South African Rand at 3%. These weightages are given according to country’s GDP. So new BRICS currency index can be traded on the forex exchange and value of each currency can be determined on a daily real time basis like USD and Euro etc. Payment can be settled in the new BRICS currency .