• India's finance ministry and the Reserve Bank of India have not commented so far on the mechanism, which would let Indian exporters continue their business with Russia even after Western sanctions restricted international payment mechanisms.
• There have been consultations between the central bank governor, the finance minister and banks, said A Sakthivel, president of the Federation of Indian Export Organisations.
• However, continued trade with Russia risks angering Western nations, including the U.S., which have imposed sanctions on Moscow for its attack on Ukraine.

India is expected to announce a payment arrangement that would allow trade with Russia to continue, the president of an Indian exporters' association told CNBC's "Street Signs" on Wednesday. 

The so-called rupee-ruble trade mechanism could come as early as next week, according to A Sakthivel, president of the Federation of Indian Export Organisations (FIEO). 

The FIEO, a government-backed association representing over 200,000 exporters, oversees India's export promotion councils.

India's finance ministry and the Reserve Bank of India have not commented so far on the mechanism, which would let Indian exporters continue their business with Russia even after Western sanctions restricted international payment mechanisms. The arrangement would also allow India to buy Russian energy exports and other goods.

Sakthivel said the Indian government is working on a proposal to allow four to five nationalized Indian banks to be engaged in the trade, and there have been consultations between the central bank governor, the finance minister and banks. 

Sakthivel added that the international sanctions on Russia provide Indian exporters with an opportunity to expand in the Russian market. "Export to Russia is not much, only in agriculture and pharmacy products. Now that the whole of the West is banning Russia, there will be lot of opportunities for Indian firms to enter Russia," he said.

Provoking the West?

However, continuing trade with Russia risks angering Western nations, including the United States, which have imposed sanctions on Moscow for its invasion of Ukraine. The U.S. is India's biggest export market. According to India's official data, India-U.S. trade in calendar year 2021 was $112.6 billion, consisting of $71 billion in exports and $41 billion in imports.  

The figures for Russia are far lower, with India exporting $3.3 billion worth of goods to Russia in 2021, mainly pharmaceutical products, tea and coffee. Imports were valued at $6.9 billion, including defense goods, mineral resources, fertilizers, metals and precious stones.

India and Russia have had a historically close relationship dating back to the Cold War. India relies heavily on Russian arms, with about 85% of its military equipment sourced from there or countries that once were part of the Soviet Union.

India has not called out Russia on the Ukraine invasion and has abstained from three recent U.N. votes to deplore the war.

When asked about the prospect of U.S. repercussions for trading with Russia, Sakthivel was sanguine as India had taken a "neutral stand" on the war in Ukraine. "The government will take into account all the factors. The government is playing it very carefully," he said.