Debt deal to help Russian firms' India plans

The agreement between India and Russia on the rupee debt fund allows the accumulated debt of Rs 4,600 crore to be used for investments in India.

Experts say this is a landmark deal that tackles a long-pending issue and will boost Russian investment in India's energy, minerals and defence sectors. The debt, accumulated over several years till April 15, 2007, is parked with the Reserve Bank of India (RBI).

Explaining the agreement, Indian officials said a Russian company planning to invest in India would deposit rouble funds equivalent to their proposed investment with the Russian central bank, which would release the equivalent amount to the RBI.

The Indian central bank will release the rupee funds to the company, which can be a joint venture between a Russian and a local firm or a wholly-owned subsidiary of a Russian company. Indian officials said the investment would have to conform to the relevant foreign investment norms for the sector concerned.

The agreement was finalised during the recent visit of Prime Minister Manmohan Singh to Russia during which he held summit-level talks with Russian President Vladimir Putin.

The rupee debt issue has figured repeatedly in talks between Singh and Putin during their meetings over the past few years.

In Moscow, Singh said the matter had been "satisfactorily resolved". Finance Secretary D Subbarao initiated the agreement "" which is effective immediately "" with Russia's Deputy Finance Minister Sergei Storchak.

Trade analysts said the deal would lead to increased Russian investments in the defence sector. Russia is also willing to actively participate in the development of a special economic zone in Orissa as part of efforts to boost economic ties with India. A joint venture for production of titanium dioxide and other titanium products is also coming up in the state.