Govt to repay Russian debt

In another attempt to utilise foreign exchange reserves, the Union government has decided to retire the entire amount of debt owned to Russia.

According to sources close to the development, the funds of longer tenure, amounting to around $2 billion, were lent to the government way back in the 1970s and 1980s for defence projects and infrastructure development.

An agreement to this effect will be reached during the visit of Prime Minister Manmohan Singh to Russia next week.

As on date, the total debt to be settled works out to around $1.8 billion. The rest has been repaid as $33.5 million in convertible currency and Rs 4,000 crore in rupees.

The repaid rupee debt is being maintained as a rupee account with the RBI for facilitating the payment by Russians for importing Indian goods.

However, this account has not been of much use in recent times and it is better to repay the debt when India is comfortable in its foreign exchange reserves position, according to sources.

Now with a comfortable foreign exchange position, while the government proposes to retire the debt, the Russian government is of the view that RBI should maintain this amount in the form of rupees on behalf of Russia. This money will be used for making investments in India by Russians.

To this effect, the Foreign Investment Promotion Board has also approved a titanium dioxide project in Orissa, which entails an outlay of $136 million by the Russian government.

The government, in consultation with RBI, is working out the details.

Recently, Russia's economics ministry and India's commerce and industry ministry came out with an initiative to set up a working group to draft a comprehensive treaty on economic cooperation.

The two countries have sought to increase mutual trade to $10 billion by 2010, expanding cooperation from the traditional military sector to other spheres, including industry, energy and investment.

Earlier this month, Moscow and New Delhi were reported to have signed a $1.6 billion contract for 40 Russian Su-30 Flanker fighter assembly sets to be supplied to India before 2010.