Russia has managed to use up most of its rupee balance, estimated by the industry at over $8 billion that had piled up in special vostro accounts of Indian banks on account of payments made largely for Russian defence purchases, and the matter is not a major concern now, officials have said.

The rupee balance has been used up by Russia through multiple avenues that include payments for Indian imports, which increased about 39 per cent to $4.05 billion in 2023, investments in infrastructure projects, investments in the equity market and purchase of government securities, the official added.

“Till a few months ago, the Russians were worried about the piling up of rupee payments in their vostro accounts in India as they received payments for their defence sales, and some other items, in Indian currency due to the West’s economic sanctions. The Indian government and the RBI then worked with Moscow to create suitable avenues for investment and also increase Indian exports to Russia. That seems to have worked,” the official told businessline.

Exploring more projects

Since defence purchases from Russia, which is one of India’s largest military hardware supplier, is expected to stay robust, the government is hopeful that the rupee payments that are made in the vostro accounts in the future (including for S-400 missile systems) will continue to be used gainfully by Moscow in the identified channels.

“The two countries are exploring more projects where Moscow can invest which could be on the lines of the India-Russia joint venture Vande Bharat deal to manufacture and maintain 120 trains for the Indian Railways. The area of heavy engineering holds a lot of scope,” the official said.

The Russian media has also written about a deal per which the Goa shipyards in India will build 24 cargo ships for operation in the Caspian Sea with the participation of the Russian Export Center by 2027. “Such deals between Russia and India could ensure continued usage of rupee balances by Russia,” the source added.

Western countries imposed banking and economic sanctions against Russia following its attack on Ukraine in February 2022, which still continues. India and Russia put in place a rupee payment system to circumvent the sanctions. Under the mechanism, a number of Russian banks, including Gazprom, Rosbank, Tinkoff Bank, Centro Credit Bank and Credit Bank of Moscow, opened their rupee vostro accounts with authorised dealer banks in India, such as UCO, HDFC and ICICI, for enabling rupee trade between the two countries.

“As India’s exports were insignificant compared to the imports, the piling up of unused rupee payments in the banks became a problem. Russia even considered suspending some of its defence sales to India at one point of time,” the official said.

On the sidelines of a G20 meeting in New Delhi in September 2023, Russia’s Foreign Minister Sergei Lavrov had reiterated his country’s concerns over billions of rupees stored in Indian banks that “unfortunately cannot be used right now”. He had said that India had proposed some ways in which the money can be invested.

Oil imports

India’s imports from Russia in 2023 touched $60.87 billion increasing 79 per cent over the previous year, creating a trade deficit of about $56 billion. However, oil imports, valued at over $40 billion, dominated the import basket, for which payment is not made in rupees, but various foreign currencies.

Through the process of smart billing for Russian oil imports, by excluding freight, insurance and other logistics costs, India is managing to stay within the West’s price cap of $60 per barrel and avoid economic sanctions in the face of rising price of Russian Urals, an official had earlier said.