India and Russia are said to be engaged in discussions to establish a viable mechanism for trade in national currencies in view of the US sanctions against Moscow under the Countering America’s Adversaries Through Sanctions Act (CAATSA).

Representatives of some leading banks in Russia are said to be in close touch with their counterparts in India to discuss rupee-rouble settlements between business establishments of the two countries to bypass the US dollar, it is understood.

The Indo-Russian trade is dominated by defence purchases by India even though most of the prominent Russian defence entities are currently under American sanctions. India had signed a multi-billion-dollar deal for the purchase of S-400 missile defence systems from Russia during President Vladimir Putin’s visit to India in early October. Since then, India has been arguing with the US to keep the missile deal out of the sanctions’ regime keeping in view India’s historic defence partnership with Moscow. However, Washington has not responded in concrete terms to India’s demand.

India’s defence trade with Russia is also expected to figure during talks between Prime Minister Narendra Modi and US Vice-President Mike Pence in Singapore on the margins of the East Asia Summit later this week.

India and Russia have been discussing trade in their national currencies for quite some time but have not been able to arrive at a consensus so far.

The issue was raised during the 24th meeting of Indo-Russian working group on banking and financial matters held in August in the Russian city of Tula. It was felt that the infrastructure for such settlements was in place but banks needed to make further progress to start transactions.

The Indian side expressed concern over negative implications of the US sanctions against Russia while the Russian side said these challenges could be addressed through a more accurate interpretation by Indian banks of the unilateral restrictions imposed against Russia by third countries.

The Russian side said it would provide the Indian side with regular updates on the sanctions regime which would then be communicated by the RBI to Indian banks.

Experts believe the current volume of trade between India and Russia is too meagre to move to settlements in national currencies, and for the beginning the two countries could start with an agreement on currency swap.