Billions of dollars worth of Russian oil profits “trapped” in India are “directly causing the depreciation of the ruble exchange rate”, a former Kremlin finance minister has said.
At least $1 billion of Russian proceeds (£800 million) are getting stuck in New Delhi every month, according to experts, money which could prove vital to Vladimir Putin sustaining his war effort.
Western sanctions have isolated Russia from trading on the dollar, the global currency, which has forced the Kremlin to sell commodities to countries such as China and India in their local currencies, the yuan and rupee respectively.
But the rupee is an “inconvertible currency”, one economist told Newsweek, because it lacks the reserves to guarantee a stable exchange rate and could, in turn, curb the Reserve Bank of India’s (RBI’s) ability to manage domestic money supply.
This has left billions of dollars unable to leave the country, while a trade in goods is not possible given India’s poor export offers. As a result of these restrictions, as much as $39 billion (£31 billion) could be stuck in Indian bank accounts, according to Reuters.
Mikhail Zadornov, a former Russian finance minister and ex-head of one of the country’s largest banks, wrote a column in a Russian state newspaper last month claiming that the “trapped” money was directly hurting the local economy.
He said the failure to return these earnings from exports to India is “the direct cause of the depreciation of the [ruble] exchange rate this summer”.
“Another non-obvious reason for the weakening [of the ruble] is the stuck rupees. Russia supplied $30 billion (£24 billion) worth of oil and petroleum products to India in the first half of the year, and our imports from India are estimated at approximately $6-7 billion (£4.7 – 6 billion) per year,” he wrote.
“We have nothing to buy in India, but we cannot return these rupees because the rupee is an inconvertible currency.”
Russia’s only option to use the money at the moment appears to be spending or investing it in India. This will not help plug the bottomless hole caused by its war spending.
