India, Russia may unlock trade fund

Rs 13,000-cr Russian investments may flow in.

New Delhi and Moscow are working at generating possible investments of Rs 13,000 crore by Russian companies in India. The money (from the rupee-rouble trade days) is parked in a rupee account with the Reserve Bank of India which can only be used by the Russian companies for trading activities.

India has proposed that the money be used for investment in Indian companies with a stipulated lock-in period. New Delhi is also seeking a discount on the prevailing exchange rate.

If both sides agree on the modalities, the deal has the potential for investment of Rs 13,000 crore, but officials said that the entire amount may not be invested.

The officials say that AFK Sistema, a Russian conglomerate with interests in telecom, insurance, real estate and retail, accounts for nearly a third of the deposits.

The Russian company is in talks with a leading Indian telecom service provider for picking up a stake. It had earlier signed a memorandum of understanding to acquire a maximum of 49 per cent in Aircel for $450 million but the deal did not materialise.

Senior government officials said that India and Russia had already held a few round of discussions on the issue but the deal has not been clinched.

The Russian delegation had earlier offered a 7-year lock-in and a discount of 7 per cent but India was demanding a higher discount. Russia has, however, hardened its stance and is now unwilling to share the price at which the rupee withdrawn from the RBI account in the past was being sold.

"The lock-in period is one of the most crucial issues since we do not want that the funds be used for short-term speculative activities. Russia is, however, yet to agree on how long the lock-in period would be," an official involved with the negotiations said.

The debt dates back to the days of special trading relations between the two countries and has been classified as concessional debt owed by India.

This debt is serviced through export of Indian goods and the repayment period is till 2037 with a decrease of annual payments from around Rs 1,000 crore earlier to around Rs 400 crore by 2010.