Scoop: India Okays Russian Firms' Investments in Debt Securities Activating Rupee-Ruble Transactions

The Indian government is expected to formally announce a rupee-ruble payment arrangement next week to allow trade with Russia, bypassing US sanctions. The US and EU members have imposed sanctions on Russian financial institutions in response to Moscow’s special military operation in Ukraine.

The Narendra Modi government has approved a proposal forwarded by Moscow that allows Russian firms to invest in debt securities issued by Indian companies.

Sources said that the rules regarding External Commercial Borrowings have been relaxed for the Russian entities to invest in bonds issued by Indian firms.

External Commercial Borrowings have benefited Indian Inc. immensely over the years as it is a cheaper source of financing.

Indian firms have raised $31.18 billion in the financial year 2022 against the backdrop of a stable currency and the availability of more affordable funds in the overseas market during the economic crisis.

“Russian capital may provide relief to firms seeking cheaper capital for their businesses as the US Fed tapering, and high energy prices may slow down fundraising from the West,” sources told Sputnik.

The earnings on the investments would be transferred to the Russian entities in rubles through a decades-old account which has existed with the Reserve Bank of India (RBI).

This will also reduce the negative impact of rupee devaluation on the cost of borrowings as a strong dollar makes overseas fundraising costlier.

On Thursday, Russia’s Trade Representation in India said that a rupee-ruble channel of payments is already operating.

Experts have pointed out that sanctions imposed by the US and its allies in response to Moscow’s special military operation do not prohibit facilitating rupee-ruble transactions.

“As of now, there is nothing to indicate that India might be barred from buying Russian commodities or facilitating Rupee-Rouble trade,” Aditya Pareek, a Research Analyst with Bengaluru-based Takshashila Institutions, reckoned.

The Biden Administration has warned Chinese entities of possible sanctions if they bypass US sanctions on Russia. However, the US remains cautious in making such remarks against India, even as New Delhi stressed that it would purchase oil and gas and operate a rupee-ruble payment mechanism to continue trade transactions with Russia.

On Thursday, Indian Foreign Minister S. Jaishankar said in parliament that “there is no question of linking the Ukraine situation to issues of trade”.

“…Because of the emerging problems in dealing with Russia, our government is examining various aspects, including the payment aspect. There is a group within the government composed of different ministries. It is led by Finance Ministry to examine these matters,” the Indian Foreign Minister added.

However, Aditya Pareek also advised India to remain cautious as the Biden administration may continue to impose additional sanctions in the days to come.

“The implicit threat of secondary US sanctions will remain no matter how craftily India might try to navigate the situation, and this applies to letting Russian entities invest in bonds of Indian companies,” Pareek added.

The US announced additional sanctions on more than 400 Russian officials and business people amid ongoing operation by Russian armed forces in Ukraine. The military operation started on 24 February at the request of the people of Donbass, who have been facing Kiev’s aggression for eight years.