Russia seeks to spend billions of rupees 'stuck' in India

Russian Foreign Minister Sergei Lavrov said on May 5 that Russia has billions of rupees in Indian banks but cannot use them.

"This is a problem," Lavrov told reporters in the Indian state of Goa on the sidelines of a meeting of the Shanghai Cooperation Organization there. "We need to use this money. But to do that, these rupees need to be converted into other currencies. We are discussing that."

The amount of Russian rupees accumulated in Indian banks has increased as the trade surplus with New Delhi has soared. India’s exports to Russia fell 11.6% to $2.8 billion in the 11 months of fiscal 2022-23, while imports rose nearly fivefold to $41.5 billion, according to data from India’s Ministry of Commerce and Industry.

A bank employee in Jammu, India, holds bundles of 2,000 rupee notes. Photo: Reuters — A bank employee in Jammu, India, holds bundles of 2,000 rupee notes. Photo: *Reuters*

Indian refiners have been snapping up cheap Russian oil, which has been shunned by the West following the war in Ukraine. Indian imports of Russian crude hit a record 1.68 million barrels a day last month, up sixfold from a year earlier, according to data firm Vortexa.

Initially, Russia wanted to encourage India to use rubles and rupees in trade between the two countries. Russian banks were sanctioned by the West and excluded from the international payment system SWIFT.

However, the ruble’s dramatic fluctuations after the war led to the cancellation of the rupee-rupee settlement mechanism for crude oil. India has so far ignored US pressure to reduce trade relations with Russia.

Alexander Knobel, director of the Institute of International Economics and Finance at the Russian Ministry of Economic Development, said that the trade imbalance could cause tens of billions of dollars worth of Russian money to be frozen in India. "In addition, India has a tradition of large trade deficits, which makes it more difficult to reach a payment agreement with a third country," he said.

Russia is the largest supplier of weapons and military equipment to India, but the trade has recently slowed due to the lack of a payment mechanism that does not violate US sanctions.

Indian refiners have so far tried to pay in UAE dirhams, rubles and rupees. Such purchases would not violate Western sanctions if the price was below $60 a barrel.

Indian banks have opened special accounts with Russian lenders such as Sberbank and VTB Bank to support foreign trade in rupees and maintain the flow of crude oil. On April 28, Russian Central Bank Governor Elvira Nabiullina also said that the current currency constraints are making it difficult for Russian exporters to repatriate their rupee earnings.

Ha Thu (according to Bloomberg)

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