India threatens to compromise efforts to isolate Russia from the global financial system to maintain its strategically significant trading ties with Moscow.

The Indian government is mulling guarantees of letters of credit (L/Cs) or bank guarantees for the country's exporters selling to Russia and considering ways to bolster rupee-rouble transactions to secure the two countries strong bilateral trading links.

Boosting trade

The Indian government may soon approve bilateral trade between Russia and India, allowing rupee-rouble trade in an arrangement that will bypass sanctions according to several reports.

The Reserve Bank of India is expected to announce measures to support the move designed to avoid any trade disruptions soon and has reportedly consulted with Indian banks on the matter.

Close bilateral ties

India abstained along with 34 other countries - including neighbouring Pakistan, Bangladesh and Sri Lanka - from a UN Security Council resolution condemning Russia's "aggression against Ukraine", winning praise from Moscow for its "independent and balanced position".

India is the world's second largest importer of arms after Saudi Arabia and, between 2016-2020, all but half of its purchases were from Russia. It is also a major consumer of Russian oil.

Annual bilateral trade between the two countries totals around US$9 billion, with relatively small quantities of pharmaceuticals, tea and coffee going from India to Russia.

L/C support likely

India is also considering guarantees for L/Cs or bank guarantees for exporters strapped for cash as the result of trades disrupted by the Ukraine conflict, two people familiar with the matter told Reuters.

The news agency cites an unnamed government official saying Indian exporters are owed about US$500 million from Russia and the government guarantees would help ease the crunch. "Letters of credit is [sic] the most likely option," the official said.

This article represents the views of the author and not necessarily those of the ICC or Coastline Solutions.