Russia is being compelled to amass up to $1 billion in rupee assets every month due to an imbalanced trade relationship with India, according to a report by Bloomberg. These stranded assets are adding to Russia’s growing stockpile of capital held abroad since the Ukraine invasion, the report said. 

Over the past year, Russia has become a leading oil supplier to India, with a significant portion of trade being conducted in Rupee. As European customers reduced their purchases following the war that started over a year ago, Russia redirected its oil shipments toward the east, including India.

According to the report, due to stagnant imports from India, Russia is facing a surplus of rupees that its companies struggle to repatriate due to local currency restrictions. The impasse in finding a solution has led to expectations of the surplus growing further, people familiar with the negotiations told Bloomberg.

According to Bloomberg, this quarterly imbalance is projected to generate around $2 billion to $3 billion that Russia cannot utilize, adding to its estimated $147 billion net foreign assets accumulated abroad in 2022. 

“The reason is a sharp boost in the volume of oil supplies from Russia. Against the backdrop of an increase in the growth of oil sales, there’s little sign of expansion in the supply of other goods,” Irina Zasedatel, a member of the presidium of Russia’s Association of Exporters and Importers told the news outlet. 

The ongoing deadlock in negotiations between India and Russia is posing challenges to their rapidly growing one-way trade, the report noted. 

Last month in Delhi, Russian Foreign Minister Sergey Lavrov said that Russia has accumulated billion of rupees in Indian bank accounts but to use this money it needs to be transferred to another currency and this is being discussed now. 

Also Read: ‘This A Problem. Accumulated Billion Of Rupees But…’: Russian Foreign Minister Sergey Lavrov On Rupee Trade Talks

When asked about the suspension of Rupee-Rouble trade talks in a press conference following the SCO Council of Foreign Ministers Meeting, Russian Foreign Minister Sergey Lavrov said, “As for the rupees, this a problem. Because we accumulated billion of rupees in Indian bank accounts. We need to use this money, but to use this money it needs to be transferred to another currency and this is being discussed now.”

According to the report, in the first quarter, India recorded a trade deficit of $14.7 billion with Russia. One of India’s key objectives is to enhance the global acceptance of the rupee in international settlements. To facilitate this, the RBI has proposed that countries accumulating surplus rupees from exports can invest the funds in domestic securities, such as government bonds.

The two countries are discussing various payment mechanisms including investments in India’s capital markets by Russian entities, the report added. Initially, Moscow did not favor the option, but it is now being reconsidered as billions of rupees continue to accumulate in Indian banks, according to officials familiar with the matter. 

There are other possibilities being explored, such as utilizing the accumulated rupees for Indian infrastructure projects in exchange for equity stakes.

For Russia, the only acceptable option is to use currencies of a third country, such as China’s yuan or the United Arab Emirates dirham, said people familiar with the deliberations, the report further said adding that an agreement is far off since Russia has limited sway in a situation with few alternative buyers to India.