The Indian government is looking into ways to formulate a mechanism for rupee payments for trade with Russia, Reuters reported on Friday.

The government is reportedly considering such a mechanism in order to deal with the effect of international sanctions on Russia over its invasion of Ukraine. The United States, European Union, United Kingdom and Canada, among other major countries, have announced sanctions till now. Some of these measures target Russian state-owned banks and restrict the country’s ability to carry out transactions in major currencies.

The Union government is looking into whether it can get Russian banks and firms to open accounts with Indian state-run banks in order to settle trade transactions, Reuters reported, citing a banking official as saying.

“This is a proactive move assuming that the conflict escalates and there could be a slew of sanctions in place,” the unidentified official said. “In this case we would not be able to settle the transaction in dollars and so an arrangement has been proposed to set up a rupee account, which is being considered.”

So far, India has also resisted calls from the United States and Ukraine to condemn Russia, its most important source of military supplies. India’s United Nations ambassador, TS Tirumurti, also justified the country abstaining from a vote deploring Russia’s “aggression” against Ukraine by stating that dialogue was the only way to resolve disputes.

The Modi government is also exploring another arrangement, in which a part of the payment can be through foreign currency and the other part can be through rupee accounts based in India, Reuters reported, citing banking and government officials.

In the past as well, India has used alternative payment options with Russia on account of sanctions being imposed on Moscow. In August 2019, a senior Russian official had said that India would pay Moscow for the S-400 Triumf air defence missile system in rupees, The Financial Express reported.

The delivery of the missile system is slated to begin in 2023. “The mode of payment will be in Indian currency,” Yaroslav Tarasyuk, Trade Representative of Russia in India, had said when Russia confirmed the delivery.

“We need to find ways to eliminate dependency on US dollar,” Roman Babushkin, the deputy chief of mission in the Russian embassy in Delhi had also said at the time. “The US dollar is distrusted worldwide.”

Meanwhile amid the Russian invasion of Ukraine, the Indian government is also planning to pay Iran in rupees for a long-term urea deal in order to protect itself from international supply disruptions, Reuters reported, citing sources.

The Union government had stopped imports of urea from Iran after the United States imposed sanctions on the country. Urea is widely used in Indian agriculture as a fertiliser. In 2018-19, Iran accounted for about 17% of India’s urea imports.

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