Russian firms ramp up spending from rupee accounts on defence equipment, arms

According to recent data from the commerce ministry, exports to Russia in 2023 stood at $4.06 billion, while imports totalled $60.60 billion.
According to recent data from the commerce ministry, exports to Russia in 2023 stood at $4.06 billion, while imports totalled $60.60 billion.


Russian exporters have also used the money held in such accounts for purchasing India securities and other imports

NEW DELHI : Russian companies have spent nearly $4 billion from their funds lying in rupee vostro accounts in India to buy locally made arms, among other purchases, over the past 6-8 months, according to two people aware of the matter.

Russia, under western sanctions because of its invasion of Ukraine, was among 22 countries whose banks were allowed to open special vostro accounts with lenders in India to conduct trade in the local currency. Rupee deposits in the Russian vostro account burgeoned as India bought increasing amounts of cheap Russian crude oil.

Russian firms, however, did not see enough opportunities to invest the money held in their vostro accounts in India, as well as because of continued volatility in exchange rates. Mint reported in October that Russian exporters were stuck with about $8 billion in their rupee vostro accounts.

Since then, though, Russian firms have been buying Indian securities, machinery and arms, according to the people mentioned above. 

“During the last 6–8 months or so, a large part of the amount has been utilized," this person said, adding, however, that it was difficult to specify the exact amount remaining in the vostro accounts because of some complex transactions.

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Spokespersons of India’s commerce ministry and the Russian embassy didn’t respond to Mint’s emailed queries.

A vostro account is managed by a domestic bank on behalf of a foreign bank. The foreign lender can use the account for transactions, including forex settlements, cross-border payments, and investments in the domestic market.

Investments from Vostro

Russian funds (in rupees) have also been invested in Indian government treasury bills since regulations do not allow such funds to be invested in corporate debt.

By the end of March 2023, Russian investments in these securities were estimated to be $10–12 billion, mostly on account of Indian purchases.

“Both New Delhi and Moscow have been working on sorting the issue (piling up of the Indian currency payment in vostro account)," said the second person mentioned earlier. “Indian exports are also being settled from the Russian funds from the vostro account."

Also read | Mint Explainer: Why India's push for trade in rupees has had limited success

Russia continued to remain the largest supplier of crude oil to India in February with $3.61 billion worth of supplies. India imported crude oil worth $4.47 billion from Russia in January.

India exports machinery, auto parts, and other engineering goods to Russia, a significant part of which are settled in rupee.

Constrained trade

Russian banks’ exclusion from the SWIFT (Society for Worldwide Interbank Financial Telecommunications) payment system following western sanctions made its interbank payment transactions difficult, with limited access to a large part of the international markets.

To overcome this, India and Russia put in place the rupee payment system.

Russia has also signed local currency trade deals with Iran and China following the sanctions on Moscow after its invasion of Ukraine in 2022.

According to recent data from the commerce ministry, Indian exports to Russia in 2023 stood at a mere $4.06 billion, while imports totalled $60.60 billion.

Also read | India-Russia trade doubled to nearly $50 billion in Jan-Sept: Russian ambassador

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