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SWIFT link between Indian and Russian banks snapped

Tags: Russia-Ukraine Popular Economics/Business

The transaction link between the Russian and the Indian banks has come to a halt after some of the key Russian banks were expelled from the SWIFT (Society for Worldwide Interbank Financial Telecommunication) network.

• SWIFT is an international body which provides messaging facilities between its member banks and financial institutions for International financial transactions.

• The decision to de- link the Russian banks from the SWIFT was taken by the western countries led by the United States of America to protest the Russian President's decision to invade Ukraine and to punish the Russians for it.

• The Russian financial system has been targeted by the western countries by imposing sanctions on Russian banks, the Central Bank of Russian Federation so as to cripple Russian ability's to wage war .

Impact on India 

• Since most of the international trade is settled in American dollars the role of the American banks are crucial in settling the trade. After the imposition of the sanction by the American government on Russian banks and companies the American banks cannot participate in settling the international trade which is settled in American dollars. It will be virtually impossible for the Indian importers or exporters to pay or receive money from the Russian. It will virtually halt trade between India and Russia.

• India is a major importer of oil, coal, potash, defence equipment from Russia.

Indian Russia Trade and problem areas 

• Russia is the 32nd largest export destination of India and it was the 20th largest import destination of India. In 2020-21 the total trade between the two countries was  $ 8.1 billion. Indian exports were $2.6 billion and imports were $ 5.48 billion.

• India’s share of exports to Russia as a proportion of its total exports is 0.8%, while India’s imports from Russia constitute 1.5% of its total imports. (Source ministry of commerce and Industry). 

Likely sector to be impacted due to war and sanctions

Edible oils

• India imports 70% of its sunflower oil from Ukraine and 20% from Russia. Any supply disruption will lead to price rise in India.  

Fertilisers 

• Russia is the world's largest producer of nitrogen and second largest producer of potash and third largest exporter of phosphate in the world. Nitrogen, Potash and Phosphate are used in making fertilisers. 

• India is one of the biggest importers of fertilisers in the world and it is totally dependent on import for phosphatic fertilisers. Any disruption of supplies from Russia will have a very negative effect on Indian agriculture.

Crude Oil 

• Russia is a leading exporter of oil and gas in the world and India imports a substantial quantity of oil from Russia.

Coking Coal 

• Russia is a major supplier of coking coal which is used in the production of steels. In October 2021 Indian and Russian signed an agreement for  collaboration in the steel and mining sector with focus on importing Russian coking coal.

SWIFT 

• Society for Worldwide International Financial Telecommunication was set up by  239 banks from 15 countries in Belgium. It went live in 1977 .At present it is present in all the continents with 200 plus countries and territories and more than 10,500 institutions as its client. 

Function 

• It provides instant communication between the networked member banks for cross-border international  fund transfer. The communication is secured and standardised. 

• Its headquarters :  La Hulpe, Belgium. 

For a detailed and clear understanding of SWIFT  Kindly see our blog on SWIFT