Moscow Mayor For Importing Food Against Rupee Fund

Moscow mayor Yuri Luzhkov has suggested the use of rupee funds generated from Indian debt repayment to import food from India in a bid to resolve Moscows imepending food crisis.

Luzhkov has asked President Boris Yeltsins government to give a part of the large unused rupee funds to the city government as a short term credit for buying food for the nine million Moscow residents.

Since a large part of the debt repayment fund earmarked for a particular year remains unused at the end of the stipulated period, the Russian government sells it to private banks and organisations at concessional rates bringing a substantial loss to the state exchequer.

 

Luzhkov, a vehement critic of many of the Yeltsin government policies including the rupee fund selling practice, has suggested that a part of the left over rupee fund be given as credit for importing food from India.

The complicated debt repayment issue had turned thorny after the breakup of the Soviet Union, giving a serious jolt to the declining trade and economic relations between India and Russia which had shared a special relationship during the Soviet era.

However, the irritant was removed as a result of President Yeltsins official visit to New Delhi in 1993, when a solution to the vexed problem was hammered out to the satisfaction of both sides. The landmark agreement, signed during the visit, envisaged India repaying roughly a billion dollars each year to Russia in the form of goods to complete a major portion of the repayment in 10 years.

Ever since the conclusion of the agreement, the Russian government has never been able to utilise the full amount earmarked for a particular year, causing much irritation in bilateral trade.

In order to find a solution to the problem, the Russian government has been trying to discover new ways to utilise the funds in time.

One such mechanism has been to sell part of the funds through auctions to private banks and companies, who on their part can import goods from India or sell it to Indian exporters to Russia. Ever since the auctioning practice began, it has been repeatedly alleged to be fraught with corrupt practices involving senior officials from various ministries.

The Russian press has been alleging that rupee funds are being auctioned at highly concessional rates at the instruction of top government officials, who are receiving kickbacks.

Some time ago, Moskovski Komsomolets, a leading liberal Moscow daily, published a front page report about such an auction where rupee funds were initially sold to six private banks at 17 per cent concession, but later the concession rate was further reduced to 17.8 per cent, allegedly at the instruction of Russias all powerful first vice-premier Anatoly Chubais. The deal apparently led to a loss of $6 million for the state exchequer. The report also accused top government officials of receiving kickbacks from the deal.

There were times when debt repayment rupee funds were sold at as much as 25 to 30 per cent concession in not too transparent auctions and the loss to the government out of such deals is not difficult to calculate, said Nikalai Radionov, an adviser to the Moscow Mayor.

That is why Luzhkov proposes to take a part of the rupee funds as a short term credit, which could be used to solve the capitals food problem with a minimum loss to the central coffers, Radionov explained.

But Luzhkovs proposal faces opposition from a powerful section of the central government. My proposal is opposed by a strong group in the central government since they have a vested interest in the `untransparent auction system, the Mayor alleged in an interview with a local paper. If the auction practice is stopped, the interest of this section would be adversely affected as a broad channel for receiving kickbacks would be closed, he added.

We have proposed to take the Indian debt (repayment funds) as a short term credit and buy tea, sugar, rice and grain from India in order to solve the capitals short supply problem. We will sell the commodities and immediately return the full amount to the government, Luzhkov said.

This is an ideal proposal for utilising the rupee funds which solves Moscows food problem and the government does not incur much loss as it does in case of auctioning of rupees, an expert from Russias foreign trade ministry said. But the powerful group in the central government is unlikely to accept the proposal, as it would mean an end to their benefits.