India explores setting up rupee trade accounts with Russia to soften sanctions blow: Sources

Indiais exploring ways to setupa rupee payment mechanism fortradewithRussiatosoftentheblowon New Delhi of Westernsanctionsimposed onRussiaafter its invasion of Ukraine, government and bankingsourcessaid.

Indian officials are concerned that vital supplies of fertilizer fromRussiacould be disrupted assanctionsintensify, threateningIndia's vast farm sector.

Indiahas called for an end to violence in Ukraine but refrained from outright condemnation ofRussia, with which it has long-standing political and security ties.

Russiainvaded Ukraine by land, air and sea on Thursday in the biggest attack on a European state since World War Two, prompting tens of thousands of people to flee their homes.

Russian forces pressed their advance on Friday and Ukrainian President Volodymyr Zelenskiy pleaded with the international community to do more, sayingsanctionsannounced so far were not enough.

Officials said the plan was to getRussian banks and companies to openaccountswith a few state-run banks inIndiafortradesettlement, a banking source involved in the discussions said.

"This is a proactive move assuming that the conflict escalates andthere could be a slew ofsanctionsin place," the source said.

"In this case we would not be able to settle the transaction in dollars and so an arrangement has been proposed to setupa rupee account, which is being considered."

Funds in suchaccountsact as a guarantee of payment fortradeexchanged between two countries, while the parties barter commodities from each other to offset the sum, the source said.

A similar arrangement, in which part of the settlement withRussiais in foreign currency and rest is through local rupeeaccounts, was also being explored, said the banking and the government source.

Such mechanisms are often used by countries to shield themselves from theblowofsanctionsandIndiaalso used it with Iran after it came under Westernsanctionsfor its nuclear weapons programme, the source said.

The programme was introduced in 2012 and worked well for several years.

The discussions onRussiawere still at an early stage and formal talks had not yet begun between the two sides, anIndian government official said.

EU leaders agreed on Thursday to impose new economicsanctionsonRussia, joining the United States and Britain in trying to punishRussian President Vladimir Putin and his allies for the attack.

ThesanctionsimpedeRussia's ability to do business in major currencies and target individual banks and state-owned enterprises.

The finance ministry did not immediately respond to a request seeking comment. None of thesourceswanted to be identified as the discussions are private.

Russia's exports toIndiastood at $6.9 billion in 2021, mainly mineral oils, fertilisers and rough diamonds, whileIndiaexported $3.33 billion worth of goods toRussiain 2021, mainly pharmaceutical products, tea and coffee.

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Russiaand Belarus usually account for nearly a third ofIndia's total potash imports. It would not be feasible to replace them amid a rally in fertilizer prices to a record high, a senior industry official told Reuters.

New Delhi is also holding a meeting with fertilizer industry officials on Friday to explore ways to secure supplies fromRussiaand Belarus, said a senior fertilizer industry official, who declined to be identified.