The Indian government has expressed concerns over using the Chinese yuan for Russian oil imports. This led to a delay in payments for seven shipments of Russian crude oil imported by state-run Indian oil refineries, according to sources within the Finance Ministry.
"It is not banned, and if a private firm has yuan to settle its trade, the government will not stop it, but it will neither encourage nor facilitate such trade," an unnamed government official told Reuters.
One state-run oil company, Indian Oil Corporation (IOC), previously settled purchases in the yuan. In contrast, Bharat Petroleum Corporation and Hindustan Petroleum, two other state-run oil companies, have yet to use yuan to pay for Russian oil.
While state-run oil refineries hesitate, private Indian refiners continue to pay for Russian oil imports in yuan. However, most purchases are settled in UAE dirhams.
It is unclear whether the Indian government is deliberately withholding cargo payments, some of which have been pending since late September. However, despite the payment delay, Russian oil companies like Rosneft continue supplying Indian refiners.
India has become the biggest importer of Russian seaborne crude at discounted prices. India imported some 1.78 million barrels per day (bpd) of Russian oil in September, up 16 percent compared to August.
Added expense, geopolitical concerns
One reason for the government's unease is the added expenses of using the yuan. Indian refiners must convert their rupees into Hong Kong dollars and then yuan, incurring a two to three percent higher cost than using the UAE's dirham, India's preferred currency.
In addition, there are concerns that using the yuan would inadvertently boost China's economy. Due to ongoing border tensions, Beijing is still in a geopolitical dispute with New Delhi. Last year, the two countries' troops clashed.
Currency issues have hampered trade between India and Russia for some time now. The prospects of using India's native currency in the trade aren't favorable for Moscow. Russia has accumulated billions of dollars worth of rupees that it can't repatriate. The sheer size of this currency stockpile has been linked to the recent decline of the Russian ruble by a former Kremlin official.
Previously, India traded using U.S. dollars. However, the fear of Western sanctions as Moscow's exports are under international scrutiny helped push its turn to the yuan earlier this year.
Imports from Russia increase
Russia and Hong Kong witnessed an increase in their inbound shipments during the initial months of the current fiscal year (2023-24). This positive trend stood out as India's imports declined by 12.2 percent, mainly due to subdued demand and falling commodity prices.
According to data from the commerce department, imports from Russia surged 67 percent to $30.4 billion from April to September. This development drove Russia to become India's second-largest import partner after China.
Last year, the imports were merely $18.24 billion from April to September. Russia's share of India's oil imports soared from less than 1.0 percent to over 40 percent since the Russia-Ukraine conflict began.
Imports from Hong Kong also increased to $10.21 billion, compared to $10 billion in April-September 2022.
Meanwhile, the ministry's data indicated a decrease in imports from China and the U.S. for the period to $50.47 billion and $21.39 billion from $52.42 billion and $25.79 billion, respectively.
Aside from the two countries, India's imports from the UAE, Saudi Arabia, Iraq, Indonesia, Singapore and Korea also contracted.