In a significant move, Russian firms have invested nearly $4 billion in Indian defense equipment, utilizing funds from their Vostro accounts, which were previously lying idle. This investment marks a significant shift in the bilateral trade between the two nations, with the Russian firms paying in Indian rupees.
As of October, Russian exporters held approximately $8 billion in these accounts, which were established to facilitate trade between Russia and India using the Indian currency. These accounts are managed by a domestic bank on behalf of a foreign bank. However, due to a lack of investment opportunities in India, a considerable portion of these funds remained unspent.
In the past six months, Russian firms have spent about half of these funds, primarily on India-made defense equipment and armaments. "It is difficult to say the exact amount in the Vostro accounts since some transactions are very complex. However, during the last 6-8 months or so, a large part of the amount has been used," said an anonymous source familiar with the matter.
The Reserve Bank of India (RBI) in July 2023 permitted 20 banks operating in the country to open 92 Special Rupee Vostro Accounts (SRVAs) of partner banks from 22 countries, including Russia, to promote bilateral trade in local currencies. These accounts allow foreign lenders to conduct transactions, including forex settlements, cross-border payments, and investments in a different market.
The Russian Vostro account started witnessing a large amount of rupee deposited as India purchased increased amounts of cheap Russian crude oil following the sanctions imposed on Moscow by the West. Russia is among the largest suppliers of crude oil to India.
Russian funds have also been invested in Indian government treasury bills, as per regulations prohibiting such funds from being invested in corporate debt. "Indian exports are also being settled from the Russian funds from the Vostro account," added another source.
According to recent data from India's commerce ministry, exports to Russia in 2023 stood at $4.06 billion, while imports totalled $60.60 billion. Both New Delhi and Moscow are working on sorting the issue of the piling up of rupee payments in the Vostro account, indicating a continued commitment to strengthening their bilateral trade relations.
More for you:
