Global Courant 2023-04-21 16:34:15
NEW DELHI — Russian military supplies to India have stalled as the countries scramble to find a payment mechanism that does not violate US sanctions, according to knowledgeable Indian officials.
Indian arms payments of more than $2 billion ($2.66 billion) have been stalled for about a year, and Russia has stopped extending credit for a pipeline of about $10 billion worth of spare parts and two S-400s. rockets. defense system batteries yet to be delivered, said the officials, who declined to be identified due to the sensitivity of the issue. Russia is India’s largest supplier of weapons needed in border disputes with Pakistan and China.
India is unable to foot the bill in US dollars due to concerns over secondary sanctions, while Russia is unwilling to accept rupees due to exchange rate volatility, the officials said. New Delhi also does not want to finalize the deal in Russian rubles because of concerns about being able to buy enough on the open market at a reasonable rate, they said.
The Indian government has proposed to Moscow to use the rupees from arms sales to invest in Indian debt and capital markets to avoid stockpiling rupees, but Vladimir Putin’s government does not find that attractive.
One possible solution would be to use euros and dirhams, the currencies used to pay for Indian imports of Russian crude oil at a discount, a senior Indian government official said. However, using these currencies to pay for weapons could provoke more criticism from the US on sanctions than oil, as well as driving up costs due to unfavorable exchange rates for India.
Another option under discussion is a mechanism for Russia to offset purchases of Indian imports against the price of the weapons, one of the officials said. But this isn’t easy, because last year Russia had a $37 billion trade surplus with India, the third largest after China and Turkey, according to data compiled by Bloomberg.
India’s Defense Ministry, Foreign Ministry, Finance Ministry and Reserve Bank of India did not respond to calls or email requests for comment. The Kremlin and Rosonboronexport, Russia’s state arms sales company, also did not respond to text messages and email requests for comment.
The issue of arms payments has become more pressing recently and dominated discussions when National Security Adviser Ajit Doval visited Moscow in January, the people said. It also came up a lot this week in talks in Delhi between Russian Deputy Prime Minister Denis Manturov and Indian Foreign Minister Subrahmanyam Jaishankar, who this week said more work needed to be done on the rupee settlement.
“There are also understandable concerns about trade imbalances,” Jaishankar told reporters. “We urgently need to work with our Russian friends to address this imbalance.”
India currently operates more than 250 Russian-made Su-30MKi fighter jets, seven Kilo-class submarines and more than 1,200 Russian-made T-90 tanks – all of which will be operational for another ten years and require spare parts. Three of the five S-400 missile defense systems have already been delivered.
In addition to the impact of sanctions on potential buyers, Russian arms sales are likely to continue to fall as the Kremlin prioritizes supplies to its own military to support the invasion of Ukraine, the Stockholm International Peace Research Institute said in a March report.
Air Force hit
India’s air force, which relies on a Russian fleet of fighters and helicopters, has been among the hardest hit by the supply disruption from Moscow, the people said. It is uncertain whether Russia can carry out regular maintenance, she added, potentially leading to vulnerabilities along India’s borders with China and Pakistan.
The relationship between India and Russia will be further scrutinized when Prime Minister Narendra Modi hosts a group of 20 leaders in September, in which the war will be a major focus. That meeting could prevent India from smoothing out the arms payment mechanism with Russia immediately, the people said.
Russia remains India’s largest supplier of military equipment, although purchases have declined by 19 percent over the past five years due to sanctions and increased competition from other manufacturing countries. India has carefully calibrated its response to the Russian war in Ukraine by calling for a ceasefire and abstaining from voting on United Nations resolutions condemning the invasion.
Modi will meet with counterparts from the US and other industrialized countries in the coming weeks. These countries see India as a bulwark for China’s growing military and economic assertiveness and have offered to supply defense equipment. Yet it will take years to rid the nation of Russian weapons while maintaining a credible defensive position.
While President Joe Biden’s administration has largely refrained from punishing India for its dealings with Russia, including withholding sanctions for the S-400 air defense system, it has taken some action. Last September, a Mumbai-based petrochemical company, Tibalaji Petrochem, was added to the US Treasury Department’s sanctions list for buying petroleum products from Iran. BLOOMBERG
