INST Corridor, Alternative International Settlements System: Putin's Speech And Its Implications For India

Russian President Vladimir Putin on Tuesday (21 February) delivered a keynote speech addressing the country's Federal Assembly.

In his speech, Putin said that Russia will pay special attention to the International North-Sourth Transport Corridor (INSTC), connecting India to Russia via Iran, and de-dollarisation of the global settlements system.

INST Corridor

The INSTC is a 7,200-km-long multi-mode network of ship, rail, and road route for moving freight between India and Russia via Iran.

The route primarily involves moving freight from India, Iran, Azerbaijan and Russia via ship, rail and road.

Russia, Iran and India are the founding member states of the ambitious project and had signed the agreement for the NSTC in 2002.

Other important member states of the project include Azerbaijan, Armenia, Kazakhstan and Belarus.

The project, in the long run, will be an alternative not only to the Suez Canal but also to China's controversial Belt and Road Initiative, which has been opposed by New Delhi, saying that Chinese project violates its sovereignty as it passed through the Pakistan Occupied Kashmir.

"We will develop Black Sea and Sea of Azov ports. We will pay special attention to the North-South international corridor," Putin said in his speech.

Putin had earlier last year described the INSTC project as a “transport artery from St Petersburg to ports in Iran and India”.

The Russian President in his speech to the Federal Assembly on Tuesday (21 Ferbuary) said that "Vessels with a draft of up to 4.5 meters will be able to pass through the Volga-Caspian Sea Canal this year".

He said that this will open up new routes for business cooperation with India, Iran and other countries in the region.

"We will continue developing this corridor," he added.

De-dollarisation of International settlements system

This gains significance as India is also trying to increase its International Trade Settlement In Rupees.

Earlier last year, US, European Union, Uk and other western countries imposed sanctions on Russia, including banning Russian banks from SWIFT, an international payment messaging system used by thousands of financial institutions, following Moscow's military offensive against Ukraine.

The move aimed to hit the country's banking network and its access to funds via Swift, which is pivotal for the smooth transaction of money worldwide.

Due to the sanctions, Russia defaulted on its foreign-currency sovereign debt last year. This was Russia's first foreign debt default since 1918.

Although Russia had the money to make a $100m payment, sanctions imposed by the West made it impossible to transfer the sum to international creditors.

India had reportedly expressed interest in jointly exploring with Russia and China an alternative to SWIFT that would allow it to trade with countries under US sanctions. 

"We will continue working with our partners to create a sustainable, safe system of international settlements, which will be independent of the dollar and other Western reserve currencies that are bound to lose their universal appeal with this policy of the Western elite, the Western rulers," Putin said in his speech.

Putin further noted that the share of the Russian ruble in Moscow's international settlements had "doubled as compared to December 2021, reaching one third of the total, and including the currencies of the friendly countries, it exceeds half of all transactions".

"We are not the ones reducing transactions in dollars or other so-called universal currencies – they are doing everything with their own hands," he added.

Although, he did not name the "friendly countries" but India has established a Rupee-Ruble mechanism with Russia.

Following the imposition of Western sanctions, the Reserve Bank of India (RBI) allowed Russian banks to open nine vostro accounts in IndusInd Bank and UCO Bank. A vostro account is one maintained by a foreign bank in the domestic bank’s currency.

"The vostro accounts have been opened. The mechanism of rupee-rouble trade has been established. It is now a matter for the banks to use it,” Russia's Ambassador to India Denis Alipov had said earlier this year.