If Russia-Ukraine War Drags On, India To Consider Alternative Pay Mechanism: Report

India may consider alternative payment mechanisms for exporters if the Russia-Ukraine conflict continues for a long time and critical trade sectors such as gems and jewellery face a problem in international cash transfer, government sources said on Tuesday.

This consideration came against the backdrop of the Russia-Ukraine war and sanctions being imposed by western countries, including the Group of Seven (G-7) economies, that has imposed punitive sanctions against the Russian central bank.

They have also decided to remove Russian banks from the SWIFT inter-banking system, intended to isolate Russia from global trade.

"India is closely monitoring its foreign trade situation in the wake of the Ukraine situation and may consider alternative payment mechanisms if the adverse situation continues for a long time and key trade sectors such as gems and jewellery face a problem in international cash transfer," one of the sources said.

Exporters of gems and jewellery have received assurances of support from Russia's Alrosa, which accounts for about 30 per cent of global diamond output, and sells around 10 per cent of its rough-diamond output to India.

Diamonds account for about 50 per cent of India's gems and jewellery exports.

So far, the supply of rough diamonds from Russia has not been interrupted. Still, the industry is concerned about US sanctions on Russia and the country being banned from the SWIFT financial network, sources said, adding that the bulk of the payments has been done. The gems and jewellery trade in hubs like Surat is doing well.

They added that a lot of business had been contracted by the Indian industry before February 24. As a result, payment-related issues have not come up, although banks are cautious.

Many manufacturers have made payments in euros.

While the trade has continued without significant impact, the government is constantly in touch with importers and exporters. It is ready to consider adverse outcomes if the situation develops into a long-term international trade crisis.

Russia's Alrosa sent a letter to GJEPC (gem and jewellery export promotion council) on February 28 stating Alrosa is ready to address concerns related to day-to-day operations in the wake of the US restrictions imposed on Alrosa.

The Russian company has told the Indian industry that it has operated normally, without delays, because of its diverse banking partners. Its settlement with foreign partners has continued; usually, they said.

It is estimated that there would not be any short-term impact on the Indian diamond industry. However, a long-term crisis potentially can have an impact as the industry depends on imports.

Alrosa sells 68 per cent of its rough diamonds by value through trading centres (Belgium 40 per cent, UAE 22 per cent and Israel 6 per cent), 77 per cent sales are through long term contracts, 12 per cent by tenders, 11 per cent in the spot market.

According to the Federation of Indian Export Organisations (FIEO), the rupee-rouble trade is one of the alternative mechanisms for payments between India and Russia.

"We have suggested this to the government. Decisions will have to be taken by our central bank. The challenge in this would be fixing exchange rates for the currencies. But, our banks have experience for making payments in local currencies because we have done that with Iran," FIEO Director-General Ajay Sahai said.

Leading exporter of Mumbai and founder chairman of Technocraft Industries India Sharad Kumar Saraf said India could also explore using the BRICS bank for routing the bilateral trade.

"We can put one public sector bank as a nodal bank which would monitor the debits and credits," Mr Saraf said.