The Federation of Indian Chambers of Commerce and Industries (FICCI) is calling on the Indian government to explore ways to make letter of credit (L/C) transactions between Russia and India work effectively.

The federation's call coincided with the visit to India of the Russian prime minister, Victor Zubkov, who was in the country to launch 'Russia Year' in India and to open a trade and investment forum.

Trade barriers

India and Russia have said they will contemplate a Comprehensive Economic Cooperation Agreement to explore ways to realise the potential of bilateral trade and investment opportunities.

The FICCI however has called for barriers to trade and red tape to be reduced so that the two countries can reach their aim of pushing trade volumes up to US$10 billion by 2010 and US$20 billion by 2015.

Survey evidence

The federation says it made the call after surveys and discussions with Indian businesses dealing with Russia, which apparently revealed that the L/C payment system is "highly ineffectual."

In the absence of L/Cs, the federation says Indian businesses must negotiate deals that call on Russian importers to pay an advance payment with the balance due after delivery. In the past, Indian exporters have faced problems in receiving the balance payments from their Russian counterparts say the federation.

Government action

The FICCI has therefore suggested that the Indian government should encourage Indian banks to negotiate with Russian banks on developing a coherent L/C system.

Strengthening the system so that Indian banks could discount L/Cs issued by Russian banks would greatly mitigate the credit risk involved in transactions or export dealings with Russia, the FICCI says.

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