Rupee Surplus Under Sanctions: High-Value Jewelry Trade as Possible Outflow Channel in India-Russia Settlement

Since 2022, India and Russia have settled most of their bilateral trade in rupees, which has left Russian banks holding large rupee balances with nowhere obvious to put them. This paper looks at why those balances keep growing, why the usual economic fixes do not apply here, and whether channeling some of that money through high-value jewelry auctions could serve as a partial, incremental outflow channel. The argument is deliberately modest: this is not a structural fix but a pressure-relief mechanism that works within existing institutions and requires no new legislation. The auction record for Indian-origin jewelry, where single curated sales have reached over 100 million USD, suggests the market can handle the kind of transaction sizes that would make a measurable if limited dent in the surplus. The case rests as much on demonstration value—proving that compliant bilateral trade outside Western payment rails is operationally possible—as on the volumes involved.

Source: news24online.com

Background

After the sanctions imposed by the United States, the European Union, and the United Kingdom in February and March 2022—including the U.S. Treasury OFAC designations under Executive Order 14024, EU Council Regulation 833/2014 and its successive amendment packages, and the UK measures under the Russia (Sanctions) (EU Exit) Regulations—India and Russia faced a practical problem: they wanted to keep trading but could not easily use dollars or euros anymore. Their solution was to settle transactions in Indian rupees, held in Special Rupee Vostro Accounts at Indian banks. For a while this worked well enough. By FY 2024–25, bilateral trade reached about 68 billion USD, nearly five times what it was before the war. Over 90% of payments were now going through rubles and rupees. Russia became India’s biggest oil supplier, going from under 2% of India’s oil imports before the invasion to 36% by FY 2023–24.

However, the side effects built up quietly. Russian exporters were receiving rupees they could not spend easily outside India. The rupee is not freely convertible, and most Western banks had pulled back from Russia-linked transactions anyway, so there was no easy way to turn those rupees into something more useful. By some estimates, the accumulated rupee surplus was growing past 40 billion USD a year. Russia had raised this as a concern early on, and the numbers have only gotten worse since. Russia ended up with a growing pile of money it had on paper but could not really spend. For this reason, the question of whether high-value jewelry trade, settled through the existing rupee payment system, could serve as one channel to drain some of that surplus, has never been more important.

Why the Surplus Keeps Growing

The core issue is simple. Russia exports to India—primarily crude oil, refined petroleum, coal, and fertilizer—far more than India exports back. Russian exports move in large volumes at high prices per item, so the rupee inflows on the Russian side add up fast. Indian exports going the other way, mainly pharmaceuticals, machinery, and agricultural products, are worth less and are limited by how much Russia actually needs to import. Russia is relatively self-sufficient, and its population is about a tenth the size of India's, so demand for imports is just structurally smaller.

In a normal situation, this kind of gap fixes itself. The surplus is invested abroad or converted into other currencies, yet that is not possible here. Russia's central bank reserves were frozen, and most major Russian banks were cut off from SWIFT. The first batch of seven banks, including VTB and Promsvyazbank, were disconnected in early March 2022. Sberbank and others followed in June 2022 under the sixth package of EU sanctions. Any bank that still wants to use Western financial systems takes on serious legal risk if it handles transfers linked to sanctioned Russian entities, and that covers most banks. India could try to export more to Russia, but building that up takes years. Letting the exchange rate adjust would push up prices. Full rupee convertibility is a long-term goal, not a near-term fix. So, the rupees keep piling up.

Why Expensive, Low-Volume Trade Could Help

One possible way to deal with a trade surplus is to send a lot of cheap goods the other way. Unfortunately, this too will not work here. Russia does not need large amounts of what India sells for cheap, and the paperwork and compliance costs of moving lots of small shipments under sanctions conditions add up quickly.

A better approach is to move fewer items that are worth a lot more each. One jewelry piece worth five million dollars moves the same amount of rupees as thousands of smaller deals, but with far less paperwork and customs work. This is not to say compliance is simpler. FATF classifies high-value goods dealers within its Designated Non-Financial Businesses and Professions (DNFBPs) category, which carries enhanced due diligence obligations rather than lighter ones. The relevant question is whether the auction format makes those obligations manageable. A properly run auction generates compliance documentation as a matter of course: provenance certificates, independent valuations, KYC on each buyer, a paper trail regulator can follow transaction by transaction. That architecture is significantly harder to build across thousands of individual bilateral shipments. The auction format does not sidestep FATF’s enhanced requirements; it satisfies them more completely than bulk trade can.

That said, the EU’s sanctions have specifically targeted expensive goods going into Russia. The fourth sanctions package in March 2022 banned exports of luxury items to Russia, covering jewelry, diamonds, watches, fashion goods, and similar products, and set up a detailed list in Annex XVIII. The twelfth package in December 2023 went further on diamonds, closing loopholes that had let Russian diamonds go through third countries and come back into Western markets. India is not bound by EU rules, but that does not mean Indian companies have nothing to worry about. The U.S. has shown consistent willingness to impose secondary sanctions on third-country entities dealing with Russia. The legal authority stack relevant to any Indian counterparty runs as follows: IEEPA and the National Emergencies Act provide the foundational U.S. power; CAATSA gives explicit secondary sanctions authority; PEESA covers energy-sector pipelines; Executive Orders 14024 and 14114 are the modern operational framework; and OFAC enforcement is the practical implementation layer. Indian banks operating in this channel would need to navigate all of these, not just the RBI's domestic guidance. This is the main counterargument to the mechanism proposed here, and it deserves to be addressed directly rather than assumed away.

Yet Jewelry fits well into this picture. Russian wealthy buyers have shown real interest in Indian pieces. The 2019 Christie’s Maharajas sale brought in buyers from across the former Soviet Union, and Russian collectors have been active in this market for years. India already produces jewelry at the highest level and the auction system for Indian pieces is well established and has moved very large sums. The question the paper does not yet answer is why that sale has not been repeated at comparable scale since 2022. The answer matters because it defines exactly where GJEPC’s opportunity lies. Christie’s is a UK entity and Sotheby’s is US-owned; both operate extensively in dollar clearing and both face prohibitive secondary sanctions exposure if they facilitate high-value transactions with Russian-linked buyers. That exposure is structural, not temporary. What it creates is a gap that an Indian institution operating under RBI oversight, without direct US or UK jurisdictional hooks, can fill in a way that Western houses genuinely cannot. GJEPC is not a second-best substitute for Christie’s in this context; it is the only viable convener.

What India's Jewelry Sector Already Does

India is one of the largest jewelry exporters in the world. Surat processes roughly 90% of the world's rough diamonds by volume. Total gem and jewelry exports for 2022/23 reached around 39 billion USD, and while they softened slightly in 2023/24, the production and export setup remain among the strongest in the world. A channel with Russia would not need new factories or systems. It would just use what is already there.

The auction record for Indian-origin jewelry provides a concrete sense of what transaction sizes are achievable. Tables 1 and 2 show the top individual lots and the biggest thematic sale totals from international auction houses.

 

Table 1. Top Sold Indian Jewels at International Auctions

Jewel / Lot	Auction House	Year	Sale Price (USD)
Princie Diamond (Golconda pink diamond)	Christie's, New York	2013	~39.3 million
"Mirror of Paradise" (52.58-ct Golconda diamond ring)	Christie's	2019	6.52 million
"Arcot II" (17.21-ct D-IF Golconda diamond)	Christie's	2019	3.38 million
Imperial Spinel, Pearl and Emerald Necklace	Christie's	2019	3.01 million
Golconda Diamond Riviere Necklace	Christie's	2019	2.42 million

Source: compiled by the author.

Table 2. Top Indian-Themed Auctions by Total Sale Value

Auction / Series	Organiser	Year	Total Sale Value (USD)
Maharajas and Mughal Magnificence	Christie's	2019	~109 million
Magnificent Jewels (Indian-provenance editions)	Christie's / Sotheby's	2022–2025	50 to 100+ million
Arts of the Islamic and Indian Worlds	Christie's / Sotheby's	2022–2025	20 to 40 million
Indian, Himalayan and Southeast Asian Art	Bonhams / Sotheby's	2022–2025	10 to 30 million

Source: compiled by the author.

The numbers are presented striking. Christie's "Maharajas and Mughal Magnificence" sale in 2019 took in around 109 million USD across a single curated event. The "Magnificent Jewels" series regularly clears 50 to 100 million USD per edition. Individual Golconda diamonds have sold for anywhere from 2.4 million to 39.3 million USD a piece. These are real prices that buyers actually paid. Five to ten events a year at that kind of scale could move between 500 million and 1 billion USD out of the rupee surplus.

How It Would Work in Practice

The basic idea is a series of auctions held in India, bringing together Indian jewelry sellers and Russian buyers: wealthy individuals, private collectors, institutional investors, and family offices. Bidding would be open, prices set by the market, and settlement done in rupees through the Special Rupee Vostro Account (SRVA) system under Reserve Bank of India supervision. Jewelry categories matter here. Modern designer pieces suit buyers after contemporary luxury. Heritage-style pieces in the royal and aristocratic tradition carry investment value and have a strong track record at auction internationally. Legally documented antique and private heritage pieces, not under Archaeological Survey of India classification, tend to command the highest prices per piece and attract the most serious buyers.

The Gem and Jewelry Export Promotion Council already runs the India International Jewelry Show and IIJS Premiere, two of the largest regulated trade events in the sector globally. A Russia-focused format under GJEPC, with RBI oversight, would use that existing setup rather than starting from scratch. Western auction houses like Christie’s and Sotheby’s could not participate without serious sanctions exposure, but GJEPC has the size and experience to put together something similar.

The buyer-side picture requires more specificity than the paper has so far offered. The relevant pool is not “Russian buyers” in the abstract but Russian individuals and entities that hold legally accumulated rupee balances through the SRVA system and are not on OFAC’s Specially Designated Nationals list, the UK’s FCDO Consolidated List, or their equivalents. The mechanism only works for rupee-denominated purchases settled from existing SRVA holdings—it does not involve transferring hard currency into Russia, which is the more sensitive regulatory question. Estimates of Russia’s high-net-worth population vary, but even under conservative assumptions the pool of non-designated individuals with liquidity in Indian-held accounts runs into the thousands. GJEPC would need to build a pre-registration and OFAC-screening process into the accreditation framework, analogous to what major international financial institutions do before onboarding counterparties with Russia exposure. That is operationally achievable and is standard practice in compliant sanctions-adjacent transactions. The 2019 Christie’s Maharajas sale drew active CIS participation before the current designation environment; the question for event planners is not whether Russian collectors value this category of asset—they demonstrably do—but which segment of that collector base remains legally accessible. A well-designed accreditation process answers that question before the first hammer falls.

Paperwork is actually easier in an auction format than in ordinary trade. Every item is documented before the sale: where it came from, what it is worth, who is buying it. Regulators can check specific transactions rather than trying to review thousands of shipments. At the volumes this paper is talking about, that kind of oversight is manageable. A separate issue is that many Western banks refuse to handle any transaction that touches Russia even when it is not actually banned. The UN has flagged this as overcompliance—a violation of state sovereignty and an abuse of sanctions mechanisms beyond their intended scope. Russia explicitly aligns with that position, treating over compliance as an illegitimate extension of unilateral coercive measures that cuts off legitimate trade and humanitarian flows never intended to be restricted. The practical implication for this mechanism is that Indian banks need clear RBI guidance, not blanket refusal—a channel that is structured transparently and documented properly should not be conflated with prohibited activity.

How Much Would This Actually Help

The more useful question is not whether this mechanism closes the gap—it will not—but whether it creates a functional outflow where none currently exists. With bilateral trade at about 68 billion USD in FY 2024–25 and Russia sending far more to India than it gets back, the annual deficit is well over 60 billion USD. Five to ten auction events a year at the scale shown in Table 2 could absorb between 500 million and 1 billion USD—around 1-2% of the annual imbalance. That is a modest share, but it is also a realistic one given the size of the buyer pool and the practicalities of running curated high-value events.  It also helps to look at this alongside the other options that have been tried. India and Russia have discussed setting up a direct rupee to ruble exchange rate to get around the dollar, but this has stalled because it is hard to agree on how to set the rate and how to clear payments without going through Western systems. Russian businesses have also been reluctant to park their rupees in Indian government bonds, since they would rather get their money back in a usable form. Some trade has been shifted to Chinese yuan, but that just moves the dependence from one foreign system to another and is not really a Russia-India solution. Jewelry auctions are different from all of these. They do not need a new exchange rate. They do not ask Russia to sit on low-interest bonds. They work within the SRVA system that already exists. They can run alongside whatever other payment reforms the two countries eventually agree on.

That is not going to close the gap on its own, but right now there is essentially no outflow channel at all. Even a partial drain reduces the pressure, keeps some capital moving, and demonstrates that working bilateral financial mechanisms are possible within India’s existing regulatory framework. That demonstration value deserves more weight than the paper has yet given it. If the mechanism runs for two or three years without triggering US secondary sanctions action, it establishes something that bilateral negotiations alone cannot: a live operational precedent showing that high-value rupee-settled trade with Russian counterparties can be conducted compliantly, transparently, and without correspondent banking in Western jurisdictions. That precedent then becomes relevant to other sectors—pharmaceuticals, engineering equipment, agricultural inputs—where similar structural surpluses and similar compliance uncertainties exist. The jewelry channel is narrow, but the institutional learning and regulatory clarity it would generate are not. India’s broader objective of building a functional non-dollar trade architecture with Russia depends on accumulating exactly these kinds of small, clean, documented precedents. A mechanism that absorbs 1% of the annual imbalance while generating three years of compliance data is worth more than its arithmetic share suggests.

The limits are real. There are only so many Russian buyers willing to spend millions on Indian jewelry. If either economy hits a rough patch, demand drops quickly. High-value transactions involving Russia draw attention even when they are perfectly legal. And the ceiling on how far this can scale is probably in the low single-digit billions annually.  The Observer Research Foundation in New Delhi, which has tracked India-Russia economic relations closely, has noted that the rupee surplus problem is hard to fix bilaterally because Russia simply does not need enough Indian goods, a point that limits how much any high-value goods channel can do, jewelry included. The case for building this channel rests not on the scale of what it can absorb, but on the absence of anything else that works within the existing legal and regulatory framework—and on the demonstration value of showing that structured, compliant bilateral trade outside Western payment infrastructure is operationally possible.

What Needs to Happen

1. Reserve Bank of India: The main problem right now is not that this is illegal. It is that nobody is sure what is allowed. Indian banks do not know whether handling high-value jewelry payments with Russian buyers through the SRVA system creates US sanctions problems for them. The RBI needs to publish clear guidance on what is and is not permitted. That alone would probably bring banks back to transactions they are currently avoiding just to be safe.
2. Bank of Russia and Russian Ministry of Finance: The Russian side needs to look into who would actually buy. Which wealthy individuals, family funds, and investment firms would use this channel? What price ranges are they comfortable with? What kinds of jewelry do they want? Without knowing this, Indian sellers and event organizers cannot plan what to bring or how big to make the events. It is also worth being honest that the underlying trade gap is not going to fix itself. According to Russian sanctions expert Ivan Timofeev, the structural adjustment Russia has had to make in response to Western sanctions is not a temporary dislocation but a durable This means the rupee surplus is not a problem that will be resolved once conditions change. More broadly, this mechanism fits directly within Russia’s stated policy of reducing dependence on Western financial infrastructure. The Central Bank of Russia has published successive strategy documents on developing alternative settlement systems and expanding the share of non-dollar, non-euro bilateral trade. The rupee channel with India is already part of that agenda. A high-value jewelry auction format that actively drains the accumulated surplus, rather than letting it sit idle, would represent a concrete step within that broader framework—one that does not require new legislation or new bilateral agreements, but only clearer guidance and coordinated institutional action on both sides.
3. Gem and Jewelry Export Promotion Council: GJEPC should create a dedicated Russia-focused auction format, separate from its regular shows, with SRVA payment settlement, standard buyer checks, and RBI oversight built in from the start. The "Maharajas and Mughal Magnificence" sale at Christie's in 2019 is the clearest example of what a well-run, high-value auction can do. Something like that, run through Indian institutions, is what this needs to look like.

Conclusion

The rupee surplus is not a temporary blip. It reflects a structural mismatch between what Russia exports to India and what India can send back, locked in place by sanctions that are not going away soon. That does not mean the situation is static. High-value jewelry trade, using the SRVA payment system that already exists and the GJEPC export infrastructure that already works, is a realistic possible partial response. The auction data shows the market can handle transaction sizes that would make a real difference. Five to ten well-run curated events a year, absorbing 500 million to 1 billion USD annually, would not resolve the underlying imbalance, but they would create a functioning outflow where there is currently none. From Russia’s perspective, this is also more than a balance-of-payments fix. Every bilateral financial channel that operates outside Western payment infrastructure demonstrates in practice what Russian policy has been asserting in theory: that workable alternatives exist. A mechanism of this kind, running cleanly within Indian regulatory oversight and FATF standards, would add to the body of evidence that de-dollarized trade at scale is achievable. That is an option worth building.