India may also get the shock of the fall in Russia’s currency ruble. Bankers said the Indian corporate sector could face long receivable cycles or default of payments from Russian importers. Receivable cycle means the time taken to get money on the supply of goods.
On Monday, the Russian ruble declined by about 30 percent against the US dollar due to the deteriorating situation in the ongoing war between Russia and Ukraine.
Russia raised interest rates
The Bank of Russia on Monday decided to raise its key rates from 9.50 per cent to 20 per cent per annum, the biggest rate hike since 2014, in view of the sharp fall in Russian currency. Its purpose is to offset the risk of weakness and inflation. “This is necessary to support financial and price stability and to prevent depletion of citizens’ savings,” the central bank said.
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Bilateral trade is more than $8 billion
Indian companies have a good presence in Russia. According to the data released by the Indian Embassy in Russia, between April 2020-March 2021, there was a bilateral trade of $ 8.1 billion between the two countries. While India exported $ 2.6 billion, it imported $ 5.48 billion from Russia. Over the same period, Russian figures say bilateral trade stood at $9.31 billion, including exports from India worth $3.48 billion, and imports into India worth $5.83 billion. Indian corporates have also invested in Russia in key sectors such as energy, fuel, pharmaceuticals and infrastructure.
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There will be no difference on the contracts in dollar-euro
Anil Gupta, Vice President, ICRA said, “In our opinion, cash flow for Indian corporates should not be affected if the contracts are in dollar or euro, however, due to the huge weakness in the Russian currency, Russian importers have to make a difference in their exports. There may be challenges to pay for the commitments.”
Most of the arms supply comes from Russia
Kunal Sodhani, Assistant Vice President, Shinhan Bank (Global Trading Centre, FX and Rates Treasury) said, “India has already tied up with Russia for the purchase of S-400 and stealth frigates. India had also made several agreements for the supply of a range of missiles and weapons for the Indian Army. The second issue is that of payment through dollar transactions due to restrictions. Weakness in Russian ruble is putting pressure on crude oil prices, which will hit India both in terms of inflation and current account deficit.
Things will be bad in the short term
Gurumurthy R., Treasury Head, Dhanlaxmi Bank. Of. “Weak domestic currency is considered good for the export sector and hence India may find it beneficial to import from Russia. However, the weakness in the ruble is on account of geopolitical issues and may be temporary. However, for the short term, things may turn worse due to payment and settlement, withdrawal of investments etc.
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