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For understanding the "Rupee State Credit Route" you have to go back to end of 90's and early 2000 where the Indian government was obliged to export goods and services worth 4,000 crore every year to Russia to discharge India's outstanding loan. But since the exports from India were in excess of the demand in Russia, the Russian government auctioned Indian rupees at an average 15 per cent discount through the Vneshconombank, or the Bank of Foreign Economic Affairs of the Russian Federation (BFEA) to Russian importers.
The Russian government helped the importer in that country, who had bid collectively with others, to establish letters of credit at this discounted rate. The Indian exporter was not paid in cash, but only through letters of credit, to be honoured by the negotiating (Indian) banks.
For the Indian exporter to encash them here through the RBI as advising bank, the `export' had to be shown.
So in nutshell the Indian Govt. or RBI paid the exporters who exported the goods to Russia in Rupees and hence the name Rupee State Credit Route.
REFER
RBI/ 2004/64
A.P. (DIR Series) Circular No.71 February 20, 2004
Export of Goods to Russia against Repayment of State Credits
in Rupees - Payment of Agency Commission
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