Russia has been hit by multiple sanctions following its military operations in Ukraine. Countries around the world are imposing fresh sanctions against Russia.
The United States, the European Union, the United Kingdom and Canada have banned certain Russian banks from SWIFT, the high-security network that facilitates payments among 11,000 financial institutions in 200 countries. Earlier, Germany halted certification of the ‘Nord Stream 2’ gas pipeline, following Moscow’s actions in Ukraine.
Amid the sanctions, India allowed Russia to invest in Indian corporate debt funds that could help Moscow.
This can be seen as a return gesture for the Russian offer of selling to India oil at a whopping 25 to 30 per cent discount. Energy-starved India has already begun to avail this facility and build enough buffer stocks.
Equally important is the Indian decision, taken at the highest level, to allow Russia to pay for these investments through a Reserve Bank of India account that has existed since the collapse of the Soviet Union three decades ago. Funds have accumulated pending payments for defence purchases made from Moscow. There is thus an element of a quid-pro-quo.
India is drawing lessons from the past dealings with Iran, another sanction-hit friend. Iranian oil imports were brought down to zero some years ago after the United States made it difficult for monetary transactions with Tehran.
Among other areas, Russia will be allowed to invest in debt securities.
Reports say that the Russian government officials have asked their Indian counterparts to relax India’s External Commercial Borrowing (ECB) framework, which would allow Russian entities to invest in bonds of Indian companies, and pay for these investments through an account with the Reserve Bank of India (RBI).
The RBI account has an accumulated balance of Rs 2,000 crore from pending payments for defence purchases made from Russia, according to media reports.
‘Masala bonds’ are rupee-denominated bonds issued overseas by Indian companies. They are debt instruments that help companies raise money in India’s currency from foreign investors. Both government and private entities can issue these bonds.
The proposed arrangement is a response to pressures at the economic level, when global oil prices are rising, with their imports having a negative cascading effect on the Indian economy.
India abstained from United Nations votes on the Russia-Ukraine crisis, calling instead for an “immediate cessation of violence”, and emphasizing dialogue as the way out of the dispute.