India and Russia have agreed on a new payment method through their national currencies for multibillion-dollar defence deals, in a bid to avoid risks created by the US threat of sanctions and banking restrictions.
The arrangement would enable India to pay the first instalment soon for two warships that Russia is building for its navy, two people familiar with the matter said in New Delhi, without elaborating. Defence contracts will be settled in rubles and rupees under a payment agreement reached by the central banks of Russia and India, said a person in Moscow with knowledge of the preparations.
While the new mechanism potentially opens the way for releasing billions of dollars in contract payments to Russia, it may still be dependent on India winning agreement from US President Donald Trump not to impose sanctions in retaliation.
Russia has faced an uphill struggle to maintain sales by its strategic defence sector, which totaled $19 billion last year, partly because of US sanctions that threaten anyone who buys Russian weapons. Even though the US has applied those only once so far— against China—the fear has cast a pall over Russia’s export business. The world’s second largest arms exporter after the US, Russia suffered a 17% drop in foreign weapons deals from 2014-2018 amid declining purchases by India and Venezuela, according to the Stockholm International Peace Research Institute.
An increasingly important US partner, India also has long-time strategic ties with Moscow dating back to the Soviet era in the Cold War. Despite the decline in sales, Russia accounted for 58% of the south Asian nation’s arms imports from 2014-18. The US has been pushing New Delhi, unsuccessfully so far, to cancel a more than $5 billion contract to buy Russian advanced S-400 air-defence missile systems, brandishing the threat of punitive measures.
Still, India is attempting to obtain a US presidential waiver for its arms purchases.
Delivery of the S-400 to India is planned to start after 2020 and “issues with payment have been resolved", the Russian Federal Service for Military-Technical Cooperation said last month.India’s S-400 deal signed in October is among agreements with Russia that are cumulatively worth $10 billion. bloomberg