Interview on The Economic Times website
Indian businesses are working out alternate payment mechanisms for trade with Russia, including payment in roubles via foreign branches of Russian banks, to get around the US-imposed sanctions on that country. This follows a successful pilot under which Russian diamond miner Alrosa accepted payment in roubles from an Indian diamantaire. Alrosa is now extending the mechanism to five of its clients who are in the process of opening accounts in Russian state lender Sberbank’s branch in India.
At present, all diamond purchases are done in US dollars and the government is trying to use other currencies for trading with countries that face US sanctions.
Commerce and industry minister Suresh Prabhu has already called for a government-level agreement with Russia for diamond imports in a manner that does not adversely impact India’s balance of payments.
India is a hub for cutting and polishing of diamonds, while Russia has huge diamond reserves. Import of rough diamonds declined 6.92 per cent on year to $7.1 billion between April and August this year.
As per Evgeny Agureev, director of USO Alrosa, the payment through foreign branches of Russian banks can significantly speed up and simplify the payment process, as there is no need to use correspondent accounts with other banks. “We hope to see results in the next one month,” he told ET.
The company experimented with the alternative payment scheme with its Indian and Chinese clients and would apply it in its business as necessary. However, there are some issues switching to non-dollar trade. “In general, the experience was positive but it was not easy,” Agureev said referring to issues related to taxation and customs procedures as customs service is used to proceeds in dollars or yuans.
Around 16 per cent of the company's sales directly go to India but by adding companies with Indian capital in Belgium and Dubai, the share is 52 per cent, up from 50 per cent last year. So, India accounts for more than half of Alrosa's sales in diamonds.
The company has 65 long term clients for all markets of which 15 are in India. "Paying in rubles is part of the larger picture and not because of the US sanctions only. This is in India’s interest because there is no foreign exchange loss when we pay them directly in Russian currency,” said an expert on gems and jewellery. On the threat from synthetic or lab grown diamonds, Agureev said Alrosa’s focus will remain natural stones but cited this as a temporary problem along with rupee depreciation, stricter banking regulations and seasonality of the trade as issues faced by small and medium producers.