Rupee debt on defence imports reduces to $ 1.694 billion
The external Rupee debt on account of past military purchases from Russia (USSR) has reduced to USD 1.694 billion as per Indian finance ministry quarterly report released for September 2006. The quarterly estimate for the total Rupee debt for the same period is USD 1.921 billion.
In the 1950s, Soviet credits to India were designated in Rubles, repayable in goods exported by India, and trade was designated in Rupees. Those times all exchange rates were based on the gold standard. When gold exchange standard was abandoned in 1971, India depreciated the Rupee against other currencies without formally depreciating against gold. Moscow was disadvantaged. India agreed to a new deal linking the Ruble to a basket of western currencies. In 1991 Ruble collapsed along with the Soviet Union collapsed, and so did the Ruble. The Rupee-Ruble agreement became unfair to India. If the Rupee depreciated, Russians gained and when the Ruble depreciated, India gained nothing. An agreement was reached in 1993, under which ruble credit was denominated in Rupees and a repayment schedule was drawn up. The agreement provided for an annual repayment of about US $1 billion equivalent in Rupee to Russia over a period of 12 years starting from 1994, with smaller amounts for a further period of 33 years. The Rupee debt funds were to be used by the Russian side to import goods and trade related services from India. Since the official trade between both countries have fallen compared to pre-1991 era, the utilization remained less. Now, the Russians are trying to invest it back in India with a 5 year lock in period.This could include setting up of Indian service centers for the defence products already sold to India.
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