India’s defence deals with Russia, including the well-known S-400 deal, are currently in a state of flux due to a range of issues, from the ongoing Ukrainian conflict to intricate payment complications. Among these agreements, the S-400 deal entails the purchase of cutting-edge air defence systems from Russia. Starting from 2018, three out of the contracted five S-400 regiments have been delivered until now.
Dissecting the Challenges
The S-400 deal has been mired with several challenges, primarily involving prospective US sanctions under the Countering America’s Adversaries Through Sanctions Act (CAATSA) and delays in hitting key payment milestones. The situation is further exacerbated by the escalating conflict in Ukraine.
A staggering $3 billion payments are currently under deadlock due to these payment issues. The Rupee-Rouble Arrangement, aimed at surmounting this challenge, hasn’t proved successful due to trade imbalances and an accumulation of Rupees on the Russian side. Russia’s exclusion from the Society for Worldwide Interbank Financial Telecommunication (SWIFT) system added another layer of complexity to the situation, pushing India and Russia to adopt a Rupee-Rouble payment mechanism to conclude payments for defence arrangements.
While minor payments have seen some movement, larger payments continue to be stuck in the pipeline, leading to obstacles in fulfilling ongoing and proposed deals.
Delays in Delivery: A Growing Concern
While three regiments have been delivered to India, the delivery of the remaining two sees continued deferrals. The revised schedule remains uncertain, pending resolution of the payment standoff. Moreover, additional delays are anticipated in the delivery of two Krivak-Class Stealth Frigates that are being constructed in Russia for the Indian Navy.
India-Russia Defence Trade: Shifting Dynamics
The military-technical cooperation between India and Russia has evolved from a mere buyer-seller relationship to one involving joint research, development, and production of advanced defence technologies and systems. The partnership has shaped several military programmes and resulted in the acquisition of various military hardware by India from Russia.
Between 2018 and 2021, defence trade between India and Russia amassed roughly $15 billion, including significant deals for S-400, frigates, AK-203 assault rifles, and emergency procurements.
Understanding Russia’s S-400 Deal
The S-400 deal refers to the procurement of the highly sophisticated mobile Surface-to-Air Missile (SAM) system, S-400 Triumf. In October 2018, despite objections from the US and potential sanctions under CAATSA, India signed a $5.43 billion deal with Russia. The S-400 Triumf is capable of engaging all types of aerial targets within a 400km radius and can simultaneously track 100 airborne targets and engage six of them.
The Path Forward
Fears surrounding sanctions are curtailing the growth of trade. The Reserve Bank of India’s intervention is vital to assuage these fears and propel bilateral trade. Officials recognize the need for a comprehensive approach to resolve the payment crisis, as no single measure may be enough. Currency diversification, including the potential use of Yuan, is being considered as a method to alleviate payment challenges. Resolving these issues and establishing efficient mechanisms for executing key defence agreements are crucial to ensure the timely delivery of advanced defence systems, thereby bolstering national security and enhancing the capabilities of the Indian armed forces.
