The Rupee-Rouble trade mechanism continues to face significant obstacles as Indian financial institutions and service companies with US market exposure remain reluctant to participate due to potential sanctions risks, according to government sources. This cautious approach has prevented the materialization of the bilateral currency arrangement despite ongoing diplomatic efforts between India and Russia.

Trade Deficit Challenges and Strategic Objectives

India faces a substantial trade imbalance with Russia, with the world's largest country maintaining a $60.00 billion trade surplus. Government sources indicate that India aims to address this deficit by reducing non-tariff barriers for exports to Russia, creating more favorable conditions for Indian businesses to access Russian markets.

The current trade dynamics show Russia's economy focused on war-related activities, with most consumer product imports sourcing from China. However, marine exports from India have begun showing positive momentum, with Russia already relaxing import requirements for Indian marine products and considering further relaxations.

EAEU FTA Negotiations Progress

India's trade engagement with Russia is advancing through multilateral channels, with the second round of Free Trade Agreement negotiations with the Russia-led Eurasian Economic Union scheduled for February 2025. The Indian negotiating team will travel to Russia after the Union Budget 2026 presentation.

Key Discussion Areas and Regulatory Challenges

The upcoming FTA talks will address several critical areas including gateway issues, defense exports, and technology transfer arrangements. Government sources highlight significant scope for labor mobility across sectors, though language barriers may limit services sector movement to some extent.

Indian exporters currently face complex regulatory challenges due to overlapping requirements between Russian, EAEU, and European rules. The negotiations aim to provide clarity on export regulations, particularly for products requiring Russian language labels within and outside packages.

Marine Sector Developments

Russia's approach to Indian marine products demonstrates positive bilateral trade momentum. The relaxation of import requirements for Indian marine products represents tangible progress in reducing trade barriers, with additional relaxations under consideration.

The FTA negotiations represent India's strategic approach to addressing exporters' concerns while navigating complex international trade relationships. The focus on reducing non-tariff barriers aims to create more accessible pathways for Indian businesses to engage with the EAEU bloc, potentially reshaping the current trade deficit scenario with Russia.

The Indian rupee experienced significant weakness on Friday, breaching the psychologically important ₹90 mark against the US dollar for the first time in recent sessions. The currency closed at ₹90.20 (provisional), marking a decline of 22 paise from its previous close of ₹89.98. This depreciation came amid a confluence of negative factors including disappointing domestic macroeconomic data and strengthening of the American currency in overseas markets.

Trading Session Performance

During Friday's trading session, the rupee exhibited considerable volatility at the interbank foreign exchange market. The currency opened at ₹89.95 against the dollar and experienced significant pressure throughout the day.

Key Market Factors

Several factors contributed to the rupee's decline, with persistent foreign fund outflows and strong dollar demand from importers significantly impacting investor sentiment. Forex traders noted that the combination of disappointing macroeconomic data and strengthening of the greenback in overseas markets created additional pressure on the currency.

On the domestic macroeconomic front, India's manufacturing sector showed signs of weakening momentum. The seasonally adjusted HSBC India Manufacturing Purchasing Managers' Index (PMI) declined from 56.60 in November to 55.00 in December, representing the weakest improvement in manufacturing activity in two years. The decline was primarily driven by softer expansions in new orders, though the reading remained above the 50-mark threshold indicating continued expansion.

Market Dynamics and Offsetting Factors

Despite the negative pressures, certain factors provided some support to limit the rupee's decline. Weak crude oil prices offered relief, with Brent crude trading 0.58% lower at $60.52 per barrel in futures trade. Additionally, domestic equity markets demonstrated strong performance, providing a cushioning effect against further depreciation.

Central Bank Intervention

Market participants noted that the Reserve Bank of India reportedly intervened in the foreign exchange market by selling dollars through state-owned banks. This intervention helped prevent a more rapid pace of decline in the rupee's value. Forex traders indicated that any further intervention by the RBI may provide support to the currency at lower levels, suggesting continued monitoring of the situation by monetary authorities.

The combination of weak domestic data, foreign fund outflows, and global dollar strength created a challenging environment for the Indian rupee, leading to its breach of the ₹90 threshold against the US dollar.