Indian payments for weapons amounting to more than $2 billion have been stuck for about a year, and Russia has stopped supplying credit for a pipeline of about $10 billion worth of spare parts as well as two S-400 missile-defense system batteries that have yet to be delivered, according to the officials, who asked not be identified due to the sensitivity of the issue. Russia is India’s biggest supplier of weapons needed to deter Pakistan and China, Bloomberg reported.

India is unable to settle the bill in US dollars due to concerns about secondary sanctions, while Russia remains unwilling to accept rupees due to exchange-rate volatility, the officials said. New Delhi also doesn’t want to complete the deal in Russian rubles due to concerns about being able to purchase enough on the open market at a fair rate, they said.

India’s government has proposed Moscow use the rupees from weapons sales to invest in Indian debt and capital markets to avoid stockpiling rupees, they added, but Vladimir Putin’s government doesn’t find that appealing.

One possible solution would be to use euros and dirhams, the currencies used to pay for Indian imports of discounted Russian crude, a senior Indian government official said. However, using these currencies to pay for weapons could invite more scrutiny from the US over sanctions than oil, as well as pushing 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 Russia had a $37 billion trade surplus last year with India, its third-largest behind China and Turkey, according to data compiled by Bloomberg.

India’s Ministry of Defense, Ministry of External Affairs, Finance Ministry and the Reserve Bank of India did not respond to phone calls or emailed requests for comment. The Kremlin and Rosonboronexport, Russia’s state arms sale company, also didn’t respond to texts and emailed requests for comment. The issue of payments for weapons has taken on more urgency of late, and dominated discussions when National Security Adviser Ajit Doval visited Moscow in January, the people said. It also featured heavily in talks in Delhi between Russian Deputy Prime Minister Denis Manturov and India’s External Affairs Minister Subrahmanyam Jaishankar, who said that the rupee settlement needed more work.

“There is also understandable concern about the trade imbalance,” Jaishankar told reporters. “We need to work together with our Russian friends on a very urgent basis on how to address that imbalance.”

India currently operates more than 250 Su-30 MKi Russian-made fighter jets, seven Kilo-class submarines and more than 1,200 Russian-made T-90 tanks — all of which are operational for another decade and need spare parts. Three of five S-400 missile defense systems have already been delivered.

The Indian Air Force, which depends on a Russian fleet of fighters and helicopters, is among the worst hit from the disruption in supplies from Moscow, the people said. It’s uncertain whether Russia can perform regular maintenance, they added, potentially leading to vulnerabilities along India’s borders with China and Pakistan. The India-Russia relationship will come under further scrutiny when Prime Minister Narendra Modi hosts Group of 20 leaders in September, during which the war will be a key focus. That meeting might be holding India back from immediately ironing out the payment mechanism for weapons with Russia, the people said.

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About 70 per cent of Indian defence equipment is of Russian origin.

After Vladimir Putin started military offensive against Ukraine on February 24, various western countries – including the US – have decided to block assets of four large Russian banks, impose export controls and sanction oligarchs close to the Russian President.

“We know the geopolitical situation is difficult (currently)… Our relations with Russia will continue,” Air Marshal Singh said at a press briefing in Delhi.

He said that things are still unfolding geopolitically.

“Our position is very strong and our relations with both the countries (Russian and the US) have remained (strong) and you have seen that,” he noted.

“We are evaluating the situation. There will be certain difficulties, there is no doubt about it. But I think it should not affect us too much. I am confident that it won’t affect us significantly,” he added.

On the issue of supply of spare parts from Russia to India, he replied there is no doubt there will be difficulties for a month or two.

Air Marshal Singh said, “There are sanctions but we have gone through similar issues earlier and maybe, this would be more serious than that… I think it will not affect us critically and I hope for it also.” The IAF is aiming for 100 per cent indigenisation of the spare parts and components, he noted.

Air Marshal Singh said the defence ministry and the IAF itself have set a very aggressive timeline to reach the 100 per cent mark.

He said there is no doubt that in the coming years, the IAF will have majority of its systems indigenously designed and produced.

The final aim is that you have to be self-reliant, he added.

Three aircraft have departed to evacuate stranded citizens, the IAF vice chief said. “We can operate four aircraft per day to evacuate Indians,” he mentioned.

Air Marshal Singh stated the evacuation operations will run round the clock till all Indians are brought back.

The IAF has experience of running various such evacuation programs – the most recent one was conducted in Afghanistan, he noted.

When asked how many military transport plane An-32 have been upgraded by Ukraine till now, Air Marshal Singh replied this aircraft fleet has been upgraded to a large extent.

“The upgrade of An-32 aircraft was affected before too when Ukraine was under pressure due to the Crimean issue in 2014 and 2015,” he noted.

After that, the IAF has significantly indigenised many of the spare parts that needed to be upgraded by Ukraine, he added.

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Given its own strategic compulsions, India has so far walked the diplomatic tightrope between the US and Russia. “But India will now come under tremendous pressure from the US and its European allies to strongly oppose Russia’s invasion of Ukraine,” a senior defence official said on 24 February.

India till now has managed to stave off sanctions under the US law called CAATSA (Countering America’s Adversaries through Sanctions Act), which seeks to prevent countries from buying Russian weapons, by mounting a major diplomatic-military campaign with both the Trump and Biden administrations.

This allowed India to induct the first of the five S-400 Triumf surface-to-air missile squadrons a couple of months ago, under the $5.43 billion (Rs 40,000 crore) contract inked with Russia in October 2018, as an “urgent national security requirement” to counter aggressive neighbours like China and Pakistan.

The US also did not make noises about India’s inking of another $3 billion deal with Russia for the lease of an Akula-1 class nuclear-powered attack submarine in March 2019.

Though Russia still remains its largest defence supplier, India has increasingly turned to the US, France and Israel for its military hardware and software requirements. The US itself has bagged lucrative Indian defence deals worth over $21 billion since 2007. “But the Biden administration may no longer be willing to grant a waiver to India for buying the Russian S-400 and other weapons,” another officer said.

On the China front, India will need to keep an eagle-eye on the annual exercises of the People’s Liberation Army (PLA) in March-April along the 3,488-km Line of Actual Control (LAC) and be “prepared for any contingencies”, defence officials said.

“With the attention of the US-led West diverted to Russia’s invasion of Ukraine instead of countering China in the Indo-Pacific, an emboldened Beijing is likely to indulge in muscle-flexing along the LAC, especially in the Arunachal sector,” an official said.

As it is, the PLA has shown no signs of de-escalating the 21-month-long troop confrontation in eastern Ladakh, even as it has systematically strengthened its military positions and infrastructure all along the LAC.

Apart from conventional military capabilities, China’s focus on space, cyberspace and “informatized” and “intelligentized” warfare has been a major concern for India.

“China’s latest demonstration of physically moving one of its disabled satellites into the graveyard orbit is bringing in newer threats in the race to weaponise the space domain, a domain hitherto considered relatively safe,” IAF chief Air Chief Marshal V R Chaudhari said at a seminar on 24 February.

The Ukraine crisis has also once again reinforced the inescapable need for India to emerge out of its strategically-vulnerable position of being the world’s second-largest arms importer after Saudi Arabia.

“Instead of half-baked measures, India must make self-reliance in military requirements a concrete national mission, along with a special thrust on space, cyberspace and special operations. Moreover, a robust nuclear deterrence is required to deter all adversaries,” an official said.

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The United States is continuing to talk to India about the risks of sanctions for its acquisition of the S-400 missile system from Russia under the Countering America’s Adversaries through Sanctions Act (CAATSA), but has not made a determination “with regard to this transaction”, the State department said on 27 January 2022.

Speaking at a regular press briefing, the State department spokesperson Ned Price said, “I think it shines a spotlight on the destabilising role that Russia is playing not only in the region, but potentially beyond as well. When it comes to CAATSA sanctions, you’ve heard me say before we haven’t made a determination with regard to this transaction, but it’s something we continue to discuss with the Government of India, given the risk of sanctions for this particular transaction under CAATSA.”

Price added that whether it was India or any other country, the US continued to “urge all countries to avoid major new transactions for Russian weapon systems”. When asked if the US had a timeline on the decision on CAATSA, Price said, “I don’t have a timeline to offer, but these are issues that we continue to discuss with our partners in India.”

S-400 Deal and Sanctions Act

CAATSA came into force in 2017, at a time when the political mood in Washington DC was hostile to Russia for its actions in Ukraine, Syria and alleged interference in the 2016 US presidential elections. The Act seeks to deter countries which engage with Russia, especially in the realm of defence purchases, through punitive measures. Under the Act, sanctions were imposed on Turkey — a NATO ally — for its acquisition of the S-400 system from Russia.

India has a long-standing defence relationship with Russia — and has pursued its acquisition of the S-400 missile system.

Turkey, India and China have purchased the S-400 systems but only companies from Turkey and China have been sanctioned under CAATSA, a US domestic law introduced during the Trump era, India has so far not been acted against.

India’s Position

India had signed a $ 5 billion deal in October 2018 with Russia to buy five units of the S-400 air defence missile systems though the US administration had warned that such a move may attract sanctions. But in recent times, US Senators have also started flagging India’s purchase of naval warships from Russia.

Despite strong objections from the US and threat of sanctions from the Biden Administration, India has refused to make any changes in its decision and is going ahead with the purchase of the missile defence system.

Interestingly, S-400 is already being deployed in India and the second one is likely to be deployed by March, with the remaining three likely to arrive by September.

Asked about the possibility of US sanctions for buying the S-400 missile systems, in November 2021, MEA spokesperson Arindam Baghci said, “India and the US have a comprehensive global strategic partnership and India has a special and privileged strategic partnership with Russia. We also pursue an independent foreign policy. This applies to our defence acquisition and supplies which are guided by our national security interests.”

Balanced Approach

US President Joe Biden’s nominee for coordinator for sanctions policy James O’Brien has hinted at balance in US approach on India’s requirements for Russian S-400 missile defence systems, which are being deployed here, vis-a-vis Countering America’s Adversaries Through Sanctions Act (Caatsa).

O’Brien was asked at his confirmation hearing on Wednesday if the US experience with Turkey provided any warning or lessons on how to proceed with India. The US had imposed sanctions on Turkey over the procurement of S-400 missile systems.

O’Brien said it was difficult to compare the two situations, with a NATO ally that is breaking with legacy defence procurement systems, and then with India, a partner of growing importance, but that has legacy ties with Russia.

At the hearing US Republican senator Todd Young batted for granting Caatsa waiver to India. “I believe they are very different circumstances, and, of course, different security partnerships – but how do you believe we should think about the possibility of sanctioning our friends and not just threats?” Young asked O’Brien.

On his part Young said India was currently taking delivery of the Russian S-400 system and was also in the process of acquiring new frigate ships from Russia. “Both are important systems for the Indians,” he said, adding, “India is a vital ally in our competition against China, and thus, I believe we should resist taking any actions that might drive them away from us and the Quad. I am therefore strongly supportive of waiving CAATSA sanctions against India, given our shared foreign policy interests.”

“As most here know, the Indians have a lot of legacy systems from previous decades, and they are interoperable with the Russians’ systems. And the Indians seek to defend their land border from Chinese incursions and defend the Indian Ocean from an increasingly adventurous and lawless blue ocean navy in the People’s Liberation Army,” he said.

In October last year, two powerful US Senators – Mark Warner of the Democratic Party and John Cornyn of the Republican Party – had urged Biden not to impose provisions of CAATSA against India for buying the S-400 missile system, arguing that it was in America’s national security interest.

“We strongly encourage you to grant a CAATSA waiver to India for its planned purchase of the S-400 Triumf surface-to-air missile system. In cases where granting a waiver would advance the national security interests of the US, this waiver authority, as written into the law by Congress, allows the President additional discretion in applying sanctions,” they wrote in a letter to Biden.

Both Warner, Chairman of the Senate Permanent Select Committee on Intelligence, and Cornyn, Senate Minority Whip for the Grand Old Party (GOP), are co-chairs of the Senate India caucus.

When it comes to the crunch, New Delhi may not need the helping hand of the two co-chairs of the India Caucus in the US Senate as External Affairs Minister S Jaishankar said in 2019, “I am reasonably convinced of the powers of my persuasion. It would be my hope that people understand why this transaction is important for us.”

Russian Foreign Minister Sergey Lavrov said, in December 2021, that the S-400 missile defence deal between India and Russia has a very important meaning for India’s defence capability and it is being implemented despite the US attempting to “undermine” the cooperation.

Comments

Most observers of the India-US relationship in Washington believe the US is likely to recognise India’s defence imperatives with regard to China, and waive off sanctions. But the renewed tensions over Ukraine have created a strong bipartisan mood in Washington against Russian actions, and added to India’s challenge in balancing ties. New Delhi issued a statement on 28 January hoping for a peaceful resolution of the situation in Ukraine.

Commenting on the broader challenge for India as US-Russia tensions deepen, Ashley J Tellis, the Tata chair for strategic studies at Carnegie Endowment for International Peace and among the foremost experts on Asian geopolitics in the US, said, “There are already anxieties in the Congress about India, including vis a vis its relationship with Russia. If Delhi feels compelled to be mildly sympathetic to Russia, or even excessively neutral, it will not find a receptive audience for its position in Washington DC. India is admittedly in a hard place.”

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