An Indian business group is asking its government to urge Indian banks to talk to Russian banks with the aim of making letter of credit (L/C) transactions between the two countries more effective.

This is one of several measures recommended by the Federation of Indian Chambers of Commerce and Industry to help Indo-Russian trade double over the next five years from the US$2.72 billion recorded in 2005-06.

L/C feedback

According to feedback received by FICCI from Indian companies doing business with Russia, the L/C payment system operated by Russian banks is ineffective.

The exporters have told the chamber that in the absence of L/Cs, they have to negotiate financings with their counterparts that are inherently more risky than L/C transactions for both parties.

Payment problems

Typically, Russian importers are asked to make a payment upfront, with the balance falling due for payment after an export order is delivered. Indian exporters say that in the past they have faced problems receiving balance payments from their Russian counterparts.

The FICCI has therefore suggested that the government encourages Indian banks to negotiate with Russian banks to develop a coherent L/C system.

Other measures

Another measure suggested by the FICCI proposes the establishment of an institutional mechanism to solve financing problems faced by Indian exporters.

The FICCI is also recommending an improved interface between Russian and Indian companies to facilitate flows of information on business opportunities in each country.

Rupee-rouble debt

Another FICCI measure recommends using money in the so-called rupee-rouble debt agreement to fund investments in India, possibly with the participation of Indian and Russian joint venture partners.

Valued at around US$3 billion, India accumulated the debt during the heyday of its special trading ties with the Soviet Union.

This article represents the views of the author and not necessarily those of the ICC or any of the other partners in DC-PRO.