Russia — India Cooperation against the Background of Sanctions: Adverse Effects and New Opportunities

Russia — India Cooperation against the Background of Sanctions: Adverse Effects and New Opportunities

Before the United States introduced sanctions against the Russian defence sector, military-technical cooperation between Moscow and New Delhi had been progressing steadily. Even though Russia lost a significant share of the Indian defence market after the collapse of the USSR in 1991, it was nevertheless able to partially restore its positions from 2000 onwards. At the BRICS Summit in Goa in October 2016, Prime Minister of India Narendra Modi and President of the Russian Federation Vladimir Putin reached an agreement on the delivery of Russian S-400 Triumf anti-aircraft systems to India, the creation of a joint venture to produce Ка-226 helicopters and the construction of four frigates under Project 1135.6 for India. Negotiations were also held in other areas of cooperation.

In January 2017, the bill Countering America’s Adversaries Through Sanctions Act (CAATSA), imposing restrictions on banks that carry out operations with individuals and legal entities under sanctions, was introduced in the United States Congress. CAATSA caused concerns in India: according to Indian legislation, domestic banks must allocate funds to guarantee the supply of defence purchases made abroad. Given the strong ties that Indian banks enjoy with the American financial sector, as well as their general involvement in the global financial system, providing such guarantees to Russian enterprises that are under sanctions would lead to restrictive measures being introduced against these banks, and this would significantly complicate their operations.

The Indian government while anticipating this problem adopted a decision at the end of May 2017 to introduce a temporary exemption for weaponry deals that had already been concluded with Russia. For such agreements, it is no longer required that Indian banks guarantee funds for the purchases as the sovereign guarantees provided by Russia now suffice. Precisely which contracts were covered by this decision is unclear.

However, the Indian authorities did not consider the possible expansion of the sanctions and were unable to protect the country’s banks from punitive measures in time. In April 2018, the sanctions imposed in 2017 were extended to include “Almaz-Antey” (which produces the S-400 systems), the United Shipbuilding Corporation (which is delivering the frigates), “Russian Helicopters” and “Rosoboronexport”, thus placing all military-technical contracts between Russia and India in jeopardy. This lead to Indian banks freezing around $100 billion intended for the contracts with Russia. As a result, the possibility for delays in the delivery of weapons under the contracts that had already been concluded arose, prompting the Indian and Russian sides to set up urgent consultations to find a way out of the situation.

The approval and subsequent adoption of CAATSA put the United States in an ambiguous position. U.S. lawmakers tried to ensure that consistent pressure was exerted on Russia, which meant that they had to create the most hostile environment for Russian companies. However, countries that Washington wants to see as allies were also attacked through this policy, specifically India, Indonesia and Vietnam. These countries have been purchasing Soviet and Russian technology for years and are not in the position to abandon this practice immediately. The ideal solution for the United States would be to oust Russian manufacturers from these markets altogether and ensure that these countries transition to NATO material.

Indian experts and politicians have tried to explain their predicament to the U.S. authorities — that the country cannot drop its contracts for the supply of Russian weapons immediately even if it wanted to. Not to mention the fact that India has no intention of doing so, as it plans to continue its policy of diversifying its defence imports. By forcing India to abandon its contracts, the United States is undermining the country’s defence potential, which runs counter to the declared goal of turning India into a major player in Asia. What is more, the very tone of the U.S. statements aroused the indignation of the Indian media, politicians and the expert community: an external state tried to force its interests on a country that plans to become a great power. At the same time, Russian counter-sanctions do not harm third parties. New Delhi repeatedly stressed that India would follow only the sanctions imposed by the United Nations. The Indian authorities declared that they would continue to purchase weapons from Russia, regardless of the position of the United States.

U.S. Secretary of Defense James Mattis supported New Delhi’s position, having stated at Senate hearings that by forcing India, Vietnam and Indonesia to participate in the sanctions against Russia, Washington was actually “paralysing itself.” Secretary of State Mike Pompeo has also been critical of the policy. They proposed including a provision in the National Defense Authorization Act (NDAA-19) that releases these countries from the purview of CAATSA. The proposal was shut down by the members of Congress and the Senate. The text of the NDAA-19 was revised during the hearings to include a provision (Paragraph 1236) amending Paragraph 231 of CAATSA. The amendment states that the President of the United States has the right to suspend actions against a given country for 180 days if that country is clearly working to reduce its trade ties with Russia in the military sphere. This clarification did nothing to improve India’s position — the country’s leaders have repeatedly stated that New Delhi seeks a complete lifting of the sanctions and has no intention of ceasing military-technical cooperation with Russia. Final wording of the amendment stipulated that the President could suspend actions against a given country for 180 days if it was in line with American foreign policy priorities. Moreover, as the Pentagon’s Assistant Secretary of Defence for Asian and Pacific Security Affairs Randall Schriver said, it does not mean that the waiver will be used for future Indian purchases from Russia, since Washington is interested in ending the strategic partnership between Moscow and New Delhi.

Another source of tension in U.S.–India relations is the restrictions imposed by the United States on the import of a number of commodity items from India. These restrictions mostly affect Indian ferrous and nonferrous metallurgy. In addition, the withdrawal of the United States from the nuclear deal and the announcement of sanctions against Tehran have jeopardised Indian infrastructure and energy projects in Iran.

One way that Indian financial institutions could avoid sanctions from the United States would be to consider abandoning the U.S. dollar for purchases of Russian weapons and switching to settlements in roubles and rupees. The countries could use Singapore dollars for the transitions. Another option could be to effect payments to Russian companies that are not under the U.S. sanctions (e.g., “Krayinvestbank”, Bank “Rossiysky capital” (PJSC), “Khanty-Mansiyskiy Bank Otkritie”). The first option is preferable, as it would allow the countries to free themselves from their dependency on the U.S. dollar in bilateral trade. Although the bank that carries out financial transactions for the purchase of Russian weapons will nevertheless run the risk of falling under the sanctions. This problem would be eliminated in the second case; however, there is no guarantee that the receiver company will not be included in an updated sanctions list.

However, these are all temporary solutions. There is no doubt that the United States is committed to depriving Russia of its access to the Indian market and is prepared to toughen the sanctions regime to achieve this if such actions are needed. New Delhi must thus work out how friendly U.S. policy is towards India, and how willing Washington is to allow India an independent foreign policy. The United States threatens India through financial sanctions to buy American weapons, forcing India to either disarm themselves in front of China or get into debt. This means that New Delhi needs to make a choice that will directly affect the future of the country’s military-technical cooperation with Russia.  

There are three possible scenarios here. The first involves accepting all the conditions set by the American side, and continue the line of further rapprochement with the United States, with the caveat that the country may become severely dependent on the United States in the military and political sense. In this case, India will become a sub-hegemon of the United States in the region and will rely entirely on the U.S. assistance, thus ending India’s military-technical cooperation with Russia.

The second scenario involves the U.S. and Indian leadership furthering their current policy. India will continue along the path to becoming a great power, but this will require the expansion of contacts with Russia as well as further normalization of relations with China, which requires settlement or, at least, freezing of border disputes, defining spheres of influence and respecting of each other's interests in the region, adopting measures aimed at strengthening mutual trust. This scenario will further imply non-expansion or even limitation of military cooperation with the US that could be replaced by closer ties with Russia and third countries in sectors that are now dominated by the US items.

Finally, the third scenario involves a compromise between the United States and India. In exchange for satisfying a number of conditions set by Washington — increasing orders from the U.S. military-industrial complex, signingthe Communications Capability and Security Agreement (COMCASA) and the Basic Exchange and Cooperation Agreement (BECA) allowing India and the United States to exchange geospatial intelligence and receive access to encrypted communications systems, as well as a number of concessions in other areas — India could be temporarily exempted from the purview of the CAATSA.

The first scenario would have the worst impact on the cooperation between Russia and India, while the second is the most positive. If the latter scenario comes to pass, the two countries could achieve deeper integration of their military-industrial complexes leading to increased military technology sharing and a qualitatively new level of cooperation. Meanwhile, the third scenario would likely see Russia lose a share of the market but retain a foundation for continuing collaboration. The intermediate scenario appears to be the most likely. It would allow India to promote strategic cooperation with both Russia and the US at the same time normalizing its relations with China, balancing its policy in the military cooperation and developing its own military complex. This would allow India to minimize the arms import in future.

At present, both countries are interested in developing military-technical cooperation. India, for example, needs modern fighter jets to replace the obsolete MiG-21 models that are still operated by the Indian Air Force. Russia could thus take part in the MMCRA-2 tender with MiG-35 model and increase deliveries of fighter jets as part of inter-governmental agreements before the tender winner is announced. Additionally, Russian manufacturers of military transport aircraft are willing to expand cooperation, as the need for such equipment is increasing in the face of the poor infrastructural development in the regions under threat.

The Indian land forces are in a dire need of light tanks that can be used in mountainous terrain, primarily on the border with China. The Chinese People’s Liberation Army (PLA) has already tested and deployed light tanks that can operate in mountainous conditions, which gives it a clear advantage in an armed border conflict. Russia could offer India 2S25 Sprut-SD self-propelled tank destroyers, which are classed as light tanks and suitable for use in the mountains and capable of fighting enemy tanks, including with the help of Refleks-M guided missiles. Finally, Russia also has something to offer the Indian Navy — from assistance in creating new aircraft carriers to the supply of Project 1135.6 frigates and other promising projects including Project 11661 guard ships.

However, the development of military-technical ties depends directly on which of the possible scenarios of relations with the United States the Indian authorities choose. Obviously, if New Delhi opts to follow the U.S. sanctions policy, then expanded cooperation with Russia will be impossible. Indian authorities need to secure the country’s release from the CAATSA, either through negotiations or by demonstrating the intention to defend its national interests: India could force the U.S. to choose — either loose a potential ally in the region or accept India’s unwillingness to sacrifice strategically important ties with Russia in favor of American arms export. 



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