Russia Imposes 4% Duty On Indian Goods: Time To Introspect?

India is at a stage globally where it is signing FTAs or Free Trade Agreements with countries globally. This agreement helps mutually beneficial terms for trade. This might have an impact on Indian exports with Russia, leading to a trade imbalance. The trade deficit with Russia is exploding, standing at about 20 Billion USD.

So what's new?

In this situation, Russia has imposed four per cent duty on imports from Russia. This has also increased the cost of shipping goods. The only silver lining is agreement to trade in Rupee by Russia, however all banks are not agreeable to this development. The good news is Russia's main bank Sberbank is ready to trade in Rupee. Trade is still carried out in Dollars at the moment, which happened through 13 small Russian banks that are free from western sanctions. At present RBI has opened nine Vostro accounts for trade with the country in Rupees in IndusInd and UCO Bank.

What is a Vostro-Nostro account?

Literally, Nostro means ‘ours' and Vostro means ‘yours'. It is an account managed by domestic banks on behalf of foreign banks for holding the latter's currency in the local currency. For example, the Russian Ruble will be held in terms of INR by the bank. In Russia also a special account will be opened which will help settle the trade in Rupee. The same mechanism will be used for import as well as export. The account which will be opened in Russia in this situation will be a Nostro account. 

They are technically the same type of account, the difference being who opens the account in which country. In India we will call it Vostro account, and the Russian will be the Nostro account. The reverse is applicable when we view form the Russian perspective. The major agenda is to 

Presently, India's export to Russia has already fallen by 24 per cent from April to August given the western sanctions, and a four per cent import duty will only add fuel to the fire. At the same time, Russia has become one of India's top energy suppliers, ahead of Iraq and Saudi Arabia. Add to this India's heavy dependency on importing crude oil for its usage, which is not expected to go down anytime soon. Al these factors coupled with western sanctions following Russia-Ukarine war, has put India on red alert as far as trade relations with Russia goes.