New Delhi: Even as much of the world distances itself from Russia for invading Ukraine, particularly in the financial sector, the Narendra Modi government has approved a proposal from Moscow that will allow it to invest in debt securities of Indian companies, ThePrint has learned.
Senior government officials told ThePrint the proposal was made and approved amid the global turmoil created by the war. One of the officials declined to give details when asked when the government’s decision was.
According to the proposal, Russian government officials have asked their Indian counterparts to relax India’s Commercial External Borrowing (ECB) framework, which will allow Russian entities to invest in Indian corporate bonds and pay those investments through an account with the Reserve Bank of India. (RBI) that had existed since before the collapse of the Soviet Union three decades ago.
The RBI account, according to an official who does not wish to be named, has an accumulated balance of Rs 2,000 crore from pending payments for defense purchases made from Russia. “The money has accumulated over a period of time,” the official said.
Explaining the mechanism, another official – who also spoke on condition of anonymity – said that if an Indian entity raises funds by issuing masala bonds, a Russian entity can invest in those bonds, and payment for those investments can be deducted from the money lying with the RBI.
Masala bonds are rupee-denominated bonds issued overseas by Indian companies. These are debt securities that help companies raise funds in Indian currency from foreign investors. Government and private entities can issue these bonds.
Since the collapse of the Soviet Union, the Indian and Russian governments have used this payment mechanism by activating the RBI account only twice before – once in 1993 and then in 2003.
“It’s also a kind of rupee-ruble arrangement that existed between previous governments,” the second official said.
The official said such investments will be subject to sectoral limits set out in ECB policy, which allows Indian companies to raise funds overseas.
“It’s not just a proposal, you have to see it in the general scheme of things,” a third official source with knowledge of the development told ThePrint.
“India here is only acting in what is in its interest. There is a rupee-ruble mechanism that has existed since Soviet times, this proposal just reactivates that mechanism,” the source said.
“How it worked, India would hold rupees owed to Russia and Russia would hold rubles owed to India. Both countries would deposit that money in their local banks, for example, the State Bank of India here. And then the conversion would happen in a neutral account,” the source added.
India abstained in UN votes on the Russia-Ukraine crisis, instead calling for an “immediate cessation of violence”, and emphasizing dialogue as a way out of the dispute.
On Monday, US President Joe Biden said India – an “exception” among key US allies – “has been somewhat flimsy” over Western sanctions punishing Russia’s war on Ukraine.
ThePrint has sought comment on the matter from the Ministry of Finance and the Reserve Bank of India, but there has been no response from either till the time of publication of this report. . The report will be updated if they respond.
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No new proposal on rupee-ruble payments yet
The second government official said that although there have been discussions within the government regarding a new rupee-ruble mechanism for payments between India and Russia, no proposal for it has yet been received by the Ministry of Finance.
“These discussions are still ongoing, but no formal proposal has yet been made,” the government official added.
The government, the official said, will use the old rupee-ruble mechanism for government-to-government transactions. Under this system, India paid in rupees for items it bought from Russia, which equaled the value of the product in rubles.
The rupee-ruble mechanism also operated as a traditional barter system, under which Russia could import items from India of the same value as New Delhi would source from Moscow.
India buys cheap oil from Russia
The Indian government has also explored alternative energy sources as crude prices soared amid Russia’s invasion of Ukraine and subsequent economic sanctions imposed on Moscow by several Western countries.
The price of India’s crude oil basket hit $108.25 a barrel on Friday, according to data from the Petroleum Planning and Analysis Cell.
While India imports most of its oil needs from Saudi Arabia and only 2-3% from Russia, Indian Oil Corporation, the largest state-owned fuel retailer, is said to have purchased around 3 million barrels of oil to Russia at a reduced price in the aftermath of the Russian offensive in Ukraine.
According to commodity data and analysis firm Kpler, India’s imports of crude oil from Russia in March so far are almost four times higher than the same period last year.
“Oil shipments already committed from Russia which do not find buyers in Europe are being bought by India,” said the FinancialTimes quoted Alex Booth, head of research at Kpler, as saying.
The third source quoted earlier said India had lost some of its “strategic oil reserves” during the pandemic, which had to be used in the absence of oil from outside its usual sources.
“So now the feeling is that India will use Russian oil to replenish its strategic reserves. Indian Oil Corporation has the capability to refine Russian oil. Not only that, the Indian government would also like to send Russian oil for refining in countries that have the capacity to refine it,” he added.
Last week, External Affairs Ministry spokesman Arindam Bagchi told the media: “India imports most of its oil needs. So, we are still exploring all possibilities in the global energy market due to this situation we are facing by importing our oil needs. I don’t think Russia was a major supplier.
“Let me point out that there are a number of countries that are doing this (importing oil and gas from Russia), especially in Europe… We need energy,” he said.
(Edited by Gitanjali Das)
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