RAS question
Vostro accounts in the context of India-Russia trade are used for:
Correct answer: (D) Settling trade in Indian rupees to bypass dollar payments.
Vostro accounts in the India-Russia trade context are used to settle international trade in Indian rupees instead of routing payments through the dollar system.
Explanation
Special Rupee Vostro Accounts matter because they provide an INR route for international trade settlement. The given India-Russia context points to the RBI's 2022 arrangement under which Indian importers pay rupees into the Vostro account, and Russian exporters are paid from that account. The RBI FAQ describes SRVA settlement in Indian rupees as an additional arrangement alongside the existing system using freely convertible currencies, and says it reduces dependence on hard currency. That is why the account is not a savings, aid, or reserve-storage instrument: it is a banking mechanism for invoicing, payment and settlement of trade in rupees, especially useful when dollar payments are constrained.
Why the other options are wrong
- (A) Foreign aid distribution is unrelated because the SRVA mechanism is for settling trade payments, not transferring aid.
- (B) Personal savings of diplomats are outside the SRVA arrangement, which concerns bank-held trade settlement balances rather than individual personal accounts.
- (C) Storing gold reserves is a reserve-management function, while Vostro accounts under this arrangement hold rupee balances for trade settlement.
Concept
This tests the external sector part of Indian Economy: trade settlement, foreign exchange arrangements and India's use of rupee-based payment channels. It recurs in RAS because India-Russia trade linked SRVAs turn a current economic issue into a basic balance-of-payments and banking concept.