(MENAFN- Live Mint) "India is working with Russia to sort out lingering problems with the rupee trade mechanism, including challenges with the exchange rate mechanism and fund repatriation, two government officials said.“Though issues with the special Rupee Vostro account system haven't yet been resolved, both sides are working on the teething issues,” one of the officials said. A Vostro account is a bank account, generally in a foreign currency, which is held by one bank on behalf of another. By utilizing the respondent bank's local banking infrastructure, it enables the bank to offer services to its clients in overseas markets.In July 2022, amid western sanctions on Russia, the Reserve Bank of India (RBI) announced this mechanism to allow local traders to settle imports and exports in rupees.Mint reported on 9 August that Russian funds worth about $10-12 billion are estimated to have been invested in Indian government treasury bills in the year ended 31 March 2023, after a surge in trade deficit led to higher surpluses in the vostro accounts.India's had a $43 billion trade deficit with Russia, which left Russian exporters with huge surpluses in their vostro accounts in India. RBI allows excess balance from such accounts to be invested in payments for projects and investments, treasury bills and government securities.Despite the challenges, Russia remains committed to the rupee-trade mechanism and is unlikely to unilaterally pull out of it, another senior government official said.“The Russians will not unilaterally pull out from this arrangement,” said the second official cited above.“Any pull-out, if it ever happens, will take place after agreements between both sides,” the person added without mentioning the quantum of transactions under this mechanism. Both officials spoke under the condition of anonymity. A finance ministry spokesperson didn't respond to emailed queries.As things stand, the US dollar remains the preferred currency for trade. However, promoting trade denominated in rupees allows Indian traders to cut currency conversion costs.India has allowed banks in 22 partner-countries, including Bangladesh, Germany, Israel, Russia, Sri Lanka and the UK, to open 'vostro' accounts in the country, Reuters reported in August. India's import of oil from Russia has increased substantially over the last year.India imported crude worth $31 billion from Russia in FY23, as against $2.5 billion in the previous year and $900 million in FY21, according to government data.This has led to the widening of the trade deficit with Russia to $43 billion in FY23, as against $6.6 billion and $2.8 billion in FY22 and FY21, respectively.A Bloomberg report in June said the trade gap with India is forcing Russia to accumulate up to $1 billion each month in rupee assets that remain stranded outside the country.
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