Russia Finds Investment Outlet For Piled-Up Rupees In India

Efforts by Russia to manage billions of rupees accumulated in Indian banks have been successful. This was possible through investments in Indian stocks and infrastructure schemes.

All this happened amidst western sanctions. These sanctions targeted Russia's State-owned shipping company Sovcomflot.

The accumulation of rupees in Indian banks, flagged by Russian Foreign Minister Sergey Lavrov in May 2023, stemmed from New Delhi's increased purchase of discounted Russian crude since 2022, a period coinciding with Moscow's exclusion from Swift, the global payment system.

These funds were stored in special rupee vostro accounts (SRVAs) in India, utilised by Russia for various investments, including stocks, government securities, and infrastructure projects.

While specifics remain undisclosed due to sensitivities, insiders affirmed that a significant portion of the accumulated rupees has been utilised, alleviating the previously perceived issue. Notably, trade between India and Russia continues predominantly in national currencies, with some energy payments settled in UAE dirhams, bypassing potential complications associated with currencies like the Chinese yuan.

As per a Deccan Herald's report, the resolution of the rupee accumulation dilemma has also facilitated payments for defence contracts, notably enabling the delivery of the remaining two S-400 air defence systems under a $5.4-billion deal by 2025.

Additionally, Russia has addressed challenges stemming from US Treasury Department sanctions on Sovcomflot and the designation of 14 oil tankers as "blocked property." By managing insurance independently and reducing reliance on western firms, Russia aims to ensure the uninterrupted flow of crude to India.

While acknowledging fluctuations in Indian crude purchases, insiders emphasised that procurement decisions are primarily driven by commercial considerations, with India sourcing crude from over two dozen countries, including Russia, which often offers competitive discounts.

India's trade relationship with Russia remains robust, with petroleum imports representing a significant portion of bilateral trade, amounting to $46 billion in 2023-24. While the trade deficit favours Russia, maintained largely in SRVAs, Indian exports to Russia have also witnessed substantial growth.

The existence of SRVAs facilitates trade settlements and investments between countries, governed by regulatory guidelines outlined by the Reserve Bank of India (RBI).

These mechanisms underscore India's efforts to enhance trade resilience and mitigate risks associated with global financial systems, particularly in the face of unilateral sanctions imposed by certain nations.