Russia not Happy with Rupee Balances in Vostro
Accounts
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Rupee-Rouble Trade between India and Russia
has now been Suspended
·
Wary of US CAATSA sanctions, India is seeking
joint venture development and local manufacture of weapon systems from Russia, and
Russia has been forthcoming
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Russian foreign minister Sergei Lavrov, while
answering a reporter’s question during his press conference in Goa on Friday, May
5, 2023, bluntly implied that in its dealings with Russia, India wants to eat the
cake and have it too.
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India, which has been lapping up cheap Russian
oil for domestic consumption as well as export as refined commodities, hasn’t been
compensating Russia for its oil imports.
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Lavrov pointed out that Russia has accumulated
billions of rupees in Indian banks that Russia cannot use.
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“This is a problem. We need to use this money.
But for this, Rupees must be converted to another currency, and this is now being
discussed.”
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India and Russia have been exploring options for
settling their trade in rupees or rubles since the start
of the Russian Special Operation (SMO) in Ukraine in February 2022, but they have
made little headway even after more than a year.
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The problem is – India’s imports from Russia far
exceed its exports. As a result, Indian rupee payments to Russian bank Vostro accounts
in Indian banks are of no use to Russia.
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The obvious solution is for India to step up its
exports to Russia. Unfortunately, Indian exports are severely constrained by the
lackluster quality of Indian goods. Also, Russia is a
resource-rich country, so India doesn’t have the option to export commodities to
Russia.
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India could pay the accumulated billions of rupees
to Russia by converting them to a currency like the Chinese Yuan, however, that
would entail bearing the cost of conversion. China’s massive trade surplus with
India makes the rupee particularly weak against the Yuan.
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According to Reuters, rupee-rouble trade between
India and Russia has now been suspended. The suspension will likely restrict, if
not end, the import of cheap Russian oil since the start of the Ukraine war.
Russian foreign minister
Sergei Lavrov, while answering a reporter’s question during his press conference
in Goa on Friday, May 5, 2023, bluntly implied that in its dealings with Russia,
India wants to eat the cake and have it too.
India, which has been lapping up cheap
Russian oil for domestic consumption as well as export as refined commodities, hasn’t
been compensating Russia for its oil imports.
Lavrov pointed out that Russia has accumulated
billions of rupees in Indian banks that Russia cannot use.
“This is a problem.
We need to use this money. But for this, Rupees must be converted to another currency,
and this is now being discussed.”
India and Russia have been exploring
options for settling their trade in rupees or rubles since
the start of the Russian Special Operation (SMO) in Ukraine in February 2022, but
they have made little headway even after more than a year.
Nations become economic powerhouses
by increasing their exports. To do so, they need to manufacture quality goods in
demand across the world.
For example, Russia has the ability
to make for itself just about everything that it needs, but that doesn’t make Russia
an economic powerhouse. Russian exports are also constrained by quality when compared
to goods manufactured by China, Japan, and many European countries.
Russia’s pivot towards Asia is a historic
opportunity for the Indian private sector to increase exports to Russia. Our response
to the crisis in Ukraine so far has been akin to a trader’s response, not the response
of an entrepreneur. India can easily carve a niche for itself with the export of
consumer goods to Russia.
India’s deep-rooted defense relationship with Russia, which has stood India in good
stead for decades, has been threatened for some years now by US CAATSA sanctions.
The suspension of Rupee trade with Russia will seriously impact India’s defense capability, possibly at a time when India can least
afford enfeeblement.
It’s likely that Russia held back the
supply of an additional two S-400 regiments to India earlier because of India’s
inability to compensate Moscow. Russia could continue to supply oil to India because
Russia has surplus oil, but it couldn’t continue supplying S-400 because it doesn’t
have surplus S-400 regiments. Not now, at least, when it’s fighting a war.
Russia has expressed its enthusiasm
for participating in Make-in-India defense projects through
industry-to-industry collaboration.
India’s defense
minister Rajnath Singh held a bilateral meeting with the Minister of Defence of
Russia, Army General Sergei K Shoigu, on the sidelines
of the Shanghai Cooperation Organisation (SCO) Defence Ministers’ meeting in New
Delhi on April 28, 2023.
The two Ministers discussed wide-ranging
issues of bilateral defense cooperation, including military-to-military
ties as well as industrial partnership. They expressed satisfaction over the continued
trust and mutual respect between the two countries, particularly in defense, and reiterated their commitment to strengthening the
partnership.
Wary of US CAATSA sanctions, India is
seeking joint venture development and local manufacture of weapon systems from Russia,
and Russia has been forthcoming.
India and Russia have discussed technical
collaboration for local production of S-400 systems in India. In September 2019,
Russia’s state corporation Rostec CEO, Sergey Chemezov,
said that both India and Russia are currently in talks to launch a local S-400 production
line in India.
“Yes, we are discussing
the localization [of S-400 production] with India as well”, Chemezov reportedly
told Russia’s RBK TV.
Russia is participating in the competitive
bid for the local manufacture of P-75I submarines in India. Russia is ready to transfer
its Amur 1650 submarine technology to India, and it’s ready to collaborate with
the DRDO in fitting the submarine with an AIP system
Russia is ready to provide technology
for India’s new tanks. The Russian Federal Service of Military-Technical Cooperation
(FSVTS) said that Moscow can share its advanced Armata modular tracked platform
with India. Vladimir Drozhzhov, the deputy director of
FSVTS, told Russian media that Moscow is keen on jointly developing India’s main
battle tank with modern Russian technology.
Other JV development offers from Russia
include the Su-75 Checkmate stealth fighter.
The lack of urgency on the part of our
negotiators to work out a trade mechanism is disconcerting. As Lavrov said, Russia,
which is fighting a war, needs to use the money that India owes to Russia. As a
strategic partner with special privileges, you would expect India to be sensitive
to Russia’s concerns.
It will indeed be deeply ironic if Indian
tardiness (Or perhaps Western pressures?) derail a deep-rooted mutually beneficial
relationship that has stood the test of time.
The indirect impact of the derailing
– Russia would likely be forced to lean more heavily on China – could have a more
ominous negative impact on India’s long-term security.
There is a good reason why India continues
to seek Russian defense technology despite its access
to Western arms manufacturers in Israel, France, the UK, and the US; Russian defense technology is more cost-effective than Western technology
in certain areas, such as submarines, hypersonics, and
armor.
India has been a good market for Russian
defense OEMs. However, if Russian defense
OEMs are unable to operate in India, the loss will be India’s more than Russia’s.
Russian OEMs will easily find alternative markets – in the Middle East, South America,
and Africa – as this world inexorably moves towards multipolarity.