India is considering rupee payments for trade with Russia

India is working out a mechanism to facilitate trade with Russia using local currencies, with a decision expected as early as next week, according to people familiar with the matter.

The government is discussing how trade can be settled in rubles and rupees as Indian exporters are awaiting payments of about $500 million that have been stuck after the sanctions on Russian banks, said the people, who asked not to be identified before a final decision is made. The central bank as well as commercial lenders including State Bank of India and UCO Bank Ltd. are being consulted, they said.

Spokespersons for the government and the Reserve Bank of India were not immediately able to comment, while representatives of SBI and UCO didn’t immediately respond.

Latest data show India’s bilateral trade with Russia stood at $10.8 billion, accounting for less than 1.5% of the South Asian nation’s total. International sanctions and financial restrictions on Russia after its invasion of Ukraine are disrupting supply chains and driving up commodities prices, which add to the inflation problems of developing economies such as India.

Under the proposed mechanism, ruble could be deposited into an Indian bank after converting it into rupee and vice versa. There are some concerns, however, on how to peg the currencies, and also on ways to balance the trade as India is a net importer of Russian goods, which include defense equipment.

Russia has said it will be seeking alternative suppliers for a wide range of imports after hundreds of western companies announced they’re pulling out.

New Delhi is preparing a list of items it can export to Russia to narrow the about $5 billion trade deficit it runs currently, while considering making payments for crude oil in rupee, the people said. India wants a floating exchange rate, instead of a fixed one used by the two nations three decades ago, given the ruble has crashed in recent weeks.