In the face of Russian sanctions, India will allow Russia to invest and borrow on its domestic market

Following its military activities in Ukraine, Russia has been subjected to a slew of sanctions. New sanctions on Russia are being imposed by countries all around the world.

Certain Russian banks have been barred from SWIFT, the high-security network that allows payments among 11,000 financial institutions in 200 countries, by the United States, the European Union, the United Kingdom, and Canada. Following Moscow’s actions in Ukraine, Germany suspended certification of the ‘Nord Stream 2’ gas pipeline.

In the midst of the sanctions, India authorized Russia to invest in Indian corporate debt funds that may be of assistance to Moscow.

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This can be interpreted as a retaliation for Russia’s offer to sell India oil at a steep discount of 25 to 30%. Energy-starved India has already begun to take advantage of this opportunity and build up sufficient buffer stocks.

Equally significant is India’s decision, taken at the highest level, to allow Russia to pay for these investments using a Reserve Bank of India account that has existed since the Soviet Union’s demise three decades ago. Funds have accrued due to outstanding payments for Moscow-made defense purchases. As a result, there is a sense of reciprocity.

India is learning from its previous relations with Iran, another sanctioned ally. Iran’s oil imports were reduced to zero a few years ago when the US made it difficult to do financial operations with Tehran.

Russia will be able to invest in debt securities, among other things.

According to reports, Russian government officials have requested that India’s External Commercial Borrowing (ECB) framework be relaxed, allowing Russian businesses to invest in Indian company bonds and pay for them through an account with the Reserve Bank of India (RBI).

According to media sources, the RBI account has a balance of Rs 2,000 crore due to outstanding payments for Russian defense acquisitions.

Masala bonds are rupee-denominated bonds issued by Indian enterprises outside of India. They are debt securities that allow corporations to raise funds from overseas investors in Indian rupees. These bonds can be issued by both public and private companies.

The proposed agreement is a response to economic pressures, such as rising global oil costs, which are having a negative cascading effect on the Indian economy.

India voted no in UN votes on the Russia-Ukraine crisis, instead calling for a “immediate cease of violence” and emphasizing dialogue as the best way to resolve the conflict.