Govt to amend norms for trade with Russia

NEW DELHI, Dec 26: The government plans to modify the terms of the banking arrangement under the rupee trade with Russia to improve the pre...

NEW DELHI, Dec 26: The government plans to modify the terms of the banking arrangement under the rupee trade with Russia to improve the presence of Indian brands in the Commonwealth of Independent States while at the same time putting an end to the practice of Russian importers to route Indian exports directly to third countries at favourable terms.

In a proposal to the working group on Indo-Russian trade, the commerce ministry has suggested that Indian exports be routed to warehouses managed by the State Trading Corporation and the Minerals and Metals Trading Corporation where they will be on display for all

buyers in the region. The warehouses are expected to function as "Indian windows" or permanent display sites for Indian goods.

Indian exporters now export against letters of credit in the name of an identified Russian importer. However, the goods are then routed to a third country by the Russian importer. Under the rupee trade agreement (accounting for 80 to 90 per cent of Indian exports to Russia), the goods are made available to the Russian importer at a discount of 15 to 20 per cent. But when the importer then sells the goods to other markets he does so at the ruling market prices, affecting India’s direct dollar trade in third markets. Commerce ministry sources said the problem had been severe in the case of cashew, coffee and tea exports.

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The rupee trade arrangement, under which Indian debts of Rs. 36,000 crore are being repayed through exports at Rs. 3000 crore a year, expires in the year 2005 and the government now wants to create a brand presence for Indian exports so that it will continue to have a strong market in the region even after the agreement. India currently accounts for between 6 and 7 per cent of Russian importers. The government has now set itself a target of 14 per cent.

The government has proposed that the L/C be taken at the time of actual sale of the goods at the warehouse so that Indian sellers and CIS buyers are in direct contact with each other and so that the goods continue to be in the name of the consignor until it reaches the final buyer. This will require an amendment in the banking agreement that RBI has with its Russian counterpart – the Bank for Foreign Economic Affairs (Vnesch Economic Bank). While the RBI has given its assent to this new arrangement, the Russian authorities are reported to be reluctant to change the rules. The arrangement will now also have to include permission for Indian banks to set up subsidiaries in Russia to make procedures easier for Indian exporters who have had problems recovering the dues since 1991. SBI and Canara Bank have already been asked to set up wholly owned subsidiaries in Russia and service Indian exports to the CIS region.