On May 5, Russian Foreign Minister Sergei Lavrov revealed that Russia had amassed a substantial amount of rupees in Indian banks which can’t be used. Lavrov highlighted the growing trade surplus between the two countries as the reason behind this situation.
In the meeting held on the sidelines of the Shanghai Cooperation Organisation meeting, Lavrov informed the reporters in Goa, “This is a problem. We need to use this money. But for this, these rupees must be transferred in another currency, and this is being discussed now.”
Data from the Ministry of Commerce and Industry show that in the first 11 months of the 2022–23 fiscal year, India’s overall exports to Russia fell by 11.6%, totalling up to $2.8 billion. On the other hand, during the same period, imports from Russia considerably increased by a factor of almost five, reaching $41.56 billion. Due to Western countries’ disrespect for Russian oil as a result of President Vladimir Putin’s invasion of Ukraine, Indian refiners are to blame for the rise in imports.
As per the information provided by data intelligence firm Vortexa, the imports of Russian crude by India reached an all-time high of 1.68 million barrels per day in April, marking a substantial sixfold increase compared to the previous year.
Commenting on the issue, the Director of the Institute of International Economics and Finance of the Ministry of Economic Development Alexander Knobel states, “The imbalance in trade for Russia means the volume of ‘frozen funds’ can reach tens of billions of dollars. The situation is aggravated by India’s historically high aggregate trade deficit, which reduces the possibilities of clearing settlements with third countries.”
The lack of a payment method that complies with US sanctions has made it difficult for Russia, India’s main weaponry and military hardware supplier, to send defence supplies to the South Asian country. While Russia is reluctant to take rupees as payment, New Delhi faces difficulties in clearing the account in dollars to avoid potential secondary sanctions. Indian payments for weapons totalling more than $2 billion have been outstanding for about a year.
In conclusion, the inability to find a workable payment method has resulted in a standstill in the supply of defence goods between Russia and India, complicating the situation for both parties.