India Suggests Russia Settle Surplus Amount
India could provide Russia with various investment options for their accumulated funds, which have been affected by India’s increased oil imports. However, there could be concerns about exchange rates due to the liquidity of these funds. RBI has proposed investing in government bonds and securities, managing export-import advance flow, and other measures to address this.
India and Russia decided to set up a framework for trade settlement in rupees, but they encountered some issues. The system should have taken off as established. However, due to India’s increased oil imports, there was a significant increase in the trade deficit, resulting in a surplus of billions of rupees of Russia possibly getting trapped. As of September 10, Russia’s Foreign Minister, Sergei Lavrov, stated that the money is currently inaccessible in Indian banks. However, India has suggested potential investment options for these funds. He further added, “Our Indian friends said they would propose promising areas they can be invested in,” in a bilateral talk with Union Minister S. Jaishankar stated, “Right now our governments are talking how to use and invest them to mutual benefit.”
Over the past year, Russia has become one of India’s leading oil suppliers. This is because they have been trading in INR currencies and sending more shipments to India due to Europe’s refusal to purchase oil from Russia after they invaded Ukraine. However, Russia is now facing a problem because they have an excess of rupees due to the stagnation of imports from India. This, in turn, has caused Russian companies to struggle to repatriate the money due to some restrictions on currency exchange.
In the previous financial year, trade between Russia and India reached its peak of 44.4 billion USD, exceeding the limit set by the two nations. Hence, Russia became India’s fifth largest trading partner after the US, UAE, Saudi Arabia, and China. However, during this period, India’s oil imports increased while exports to Russia declined, leading to a Surplus Amount.
Russia may have some options to invest the excess rupees they have accumulated from trading with India. One possibility could be to use the framework introduced by the Reserve Bank of India in July 2022 to settle international monetary trade. According to the framework, surplus INR held in Vostro accounts can used for various capital and current account transactions, including investments in government securities, payments for projects, and export and import advance flow management, subject to certain limits and guidelines. Hence, this could allow Russia to put its rupees to good use and continue its successful bilateral trade relationship with India.
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