Delhi pays for Russian oil in rupees, which Moscow reinvests in India
The Reserve Bank of India has changed its rules allowing Russia to use the rupees it earns from crude oil sales in India to invest in local government bonds, stocks, equities, and loans. India's imports from Russia are up by 32.95 per cent to US$ 61.44 billion.
New Delhi (AsiaNews) - Russia will reinvest in India its oil sale profits from India.
Since war broke out in Ukraine, India has paid Russian crude in rupees, but the funds have been held in the Reserve Bank of India (RBI) to prevent money transfers to Russia from Indian banks, despite Moscow's attempts to convert Indian rupees into Emirati dirhams and Chinese yuan.
According to Indian media, Russia is now looking to invest the money in government bonds, stocks, equities, and loans.
“On the Russian side there has been hesitation to park their money for prolonged periods of time in India," said Aditya Bhan, a Kolkata-based fellow at the Observer Research Foundation, a global think tank, speaking to Newsweek.
“The Russians seem to be looking more seriously incrementally at least, at investment opportunities in India, particularly those that are government backed," the expert explained.
“The RBI, through various amendments in FEMA[*] regulations and procedures, has made it possible for Russian entities to invest in a whole bouquet of avenues, which the country has started to make full use of now,” a top level source told The Hindu businessline.
India has started paying Russian oil in rupees rather than dollars to circumvent Western sanctions imposed on Russia following its invasion of Ukraine in February 2022.
Under this mechanism, some Russian banks, including Gazprom and Rosbank, have opened rupee accounts in Indian banks, on behalf of Russian banks.
“The rising unused rupee balance for Russian entities in these accounts was a big concern for Russia,” the source added.
India is now trying to identify projects into which Russian investments can flow, like construction and certain infrastructure improvements.
Russian Foreign Minister Sergey Lavrov first hinted at the issue in September last year, saying that Moscow had "billions of rupees" deposited in Indian banks that could not be used.
After China, Russia is India’s second largest import source with imports rising by 32.95 per cent in 2023-24, to US$ 61.44 billion, billion in oil alone.
The changes to FEMA were introduced to allow investors to invest in Indian stocks and debt as well, something that has drawn Moscow’s interest, The Hindu source said.
“Details of such investments are under wraps as private companies, that have businesses in the US and the EU, are not too comfortable about disclosing them,” the source added.
Still, Western sanctions are unlikely to have an impact on Russian investment in India.
“Why should the US be bothered (about Russia’s investments)? We are not dealing in dollars. And it is Russia that is investing in India and not vice versa,” the source said.
Diplomatic and trade ties between Russia and India go back a long way.
India has never condemned Russia's invasion of Ukraine. Despite being part of Quad, the Quadrilateral Security Dialogue, with the United States, Australia, and Japan, it has never stopped importing weapons from Russia.
“Most of India’s import from Russia comprises oil, but there are also imports of defence equipment, fertilisers, edible fats and oil and precious and semi-precious stones and jewellery,” the source said.
While payment for defence equipment was largely in rupee, payment for Russian oil was taking place in other currencies. Now that the rupee balance is finding various investment avenues, India can make a larger part of payment for its Russian imports in its domestic currency,” the source added.
“At some point, both sides would be working towards mechanisms to enable repatriation. The Russians particularly would want it earlier than anybody else," said Aditya Bhan, a Kolkata-based fellow at the Observer Research Foundation, a global think tank.
For now, "Russia continues to remain an important oil source and at least for the foreseeable future, that's not set to change," he added.
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[*] Foreign Exchange Management Act.
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