In October 2021, Russia signed an agreement with India, according to which Russia will send 40 million tons of coking coal to India per year. However, in 2022, Russia has only completed 16.7 million tons, which is not much, but it has increased by 15 times.
Due to Western sanctions caused by the Russia-Ukraine conflict, Russia has encountered difficulties in using the dollar and the euro, so it has turned to the ** method of bilateral currency settlement with India in rubles and rupees. A year on, tens of billions of dollars worth of rupees have amassed in Russia's hands, while India has very few rubles in its hands. This phenomenon is not uncommon in a country like India, which has a huge annual deficit, which exceeded $200 billion last year.
India has bought tens of billions of dollars worth of energy, minerals, fertilizers and armaments from Russia in rupees, but Russia has found it difficult to get the right goods in the Indian market for rubles. India has a weak industrial base, and its main export commodities include grain, foodstuffs, minerals, textiles, cotton, and primary industrial goods, which Russia itself has, and what Russia needs is high-quality and inexpensive industrial and consumer goods, which India either does not have or do not meet Russia's needs.
This led to an awkward situation: the Central Bank of Russia held more than 2Eighty trillion rupees in cash, or about 240 billion yuan, have nowhere to spend it. With the exception of India and a few small countries in South Asia, the rest of the world hardly accepts the rupee, and Russia does not buy what it wants on the Indian market. Therefore, Russia proposes to use these rupees to buy supplies on the Indian market, at least in exchange for some physical goods, rather than leaving them in the bank to become waste paper.
The Indian goods that Russia is considering buying mainly include auto parts and simple consumer goods, but Indian local businessmen are reluctant to establish cooperative relations with Russia because they are worried about Western sanctions, which makes it difficult for Russia to buy goods from India even if it lowers its requirements. Therefore, Russia has put forward a new demand: in the future, when purchasing goods, India needs to settle in yuan. This request also applies to the previously mentioned contract for 40 million tonnes of coal per year, but India refused, leading to a temporary impasse.
Russia's proposal touched on a sensitive point for India, causing commodities on both sides to come to a standstill. India has harbored decades of hostility and jealousy towards China, and in recent years there have been border problems, and there have even been provocative acts, such as the expulsion of the last Chinese journalist in India. India has also made small moves such as holding G20 meetings in disputed areas such as southern Tibet and Kashmir.
The use of the yuan for settlements in India is unacceptable to it, and even in the face of poverty and hunger, India will not consider using the yuan, because it would mean supporting the strength of the Chinese currency and the betrayal of the state. Russia cannot accommodate India's petty temper, and if India is unwilling to cooperate, Russia will not force it.
Even if India wants to use the renminbi for settlement, it faces a shortage of currency. Last year, more than half of India's external deficit came from China and India, with a deficit of $110 billion. India bought $118.5 billion worth of goods from China, while China only bought $17.5 billion worth of goods from India, all settled in dollars. India has dollars and euros in its hands, but lacks yuan.
India can attract Chinese companies to invest in the renminbi, but given India's reputation as a "cemetery for foreign investment", very few Chinese companies dare to invest in India. Last year, India fined Xiaomi $600 million for tax evasion, froze nearly 400 million yuan in assets of Vivo's Indian subsidiary, and took similar measures against companies in other countries. This has led to the departure of 2,783 foreign companies from India over the past seven or eight years, with only 3,200 remaining, a significant number of which have ceased operations.
As a result, it is difficult for India to obtain the yuan. India will not be able to buy cheap oil and gas products from Russia without the use of the yuan. India can choose to buy oil from other countries in dollars, but this transition is very difficult in the international world, after all, there are decades of deep exchanges between Russia and India. Despite the complexity of the relationship, India has been dependent on the Soviet Union (Russia) for its equipment and energy minerals for many years, and decoupling will be a complex and long-term process.
India always wants to take advantage of its international relations and does not want to suffer losses, which makes Russia polite to it, even though it has lost tens of billions of dollars as a result. India's lack of getting cheap shows in part that it doesn't know how to get along with other countries.
India can choose to use** or get the yuan through a third country, there is always a way to solve the problem, as long as it is willing to pay the price. However, at the upcoming BRICS meeting, the issue of "unified settlement currency", which will be the focus of discussion, may become a bigger problem for Russia, India and other countries. Other countries may not have a problem on this issue, and China does not care, but India will certainly oppose it.