India May Not Be Able To Buy Defence Equipment From Russia Because Of US Sanctions

India¡¯s plans to procure strategic defence equipment from Russia including contracts of $5.5 billion for shipbuilding appear to be in jeopardy because Russian firms are unable to furnish the requisite guarantees from Indian banks owing to sanctions imposed by the US. This has raised concerns in India over procurement of the S-400 missile shield as well, which is sorely needed to seal the country¡¯s airspace with Pakistan, said people familiar with the matter.

AFP

Russia had in October last year signed an inter-governmental agreement with India for the sale of four Project 1135.6 class stealth frigates, two of which are to be made in India. The deal also involves creating shipbuilding infrastructure in India. Besides, Russia will be a key contender in an upcoming tender for a new class of conventional submarines under the P75I project of the Indian Navy. Both these projects seem to have hit a roadblock due to the US-imposed sanctions.

As per Indian rules, all foreign vendors of defence equipment need to furnish guarantees from designated Indian banks before bidding for any project.

However, with the US-imposed Specially Designated Nationals (SDN) sanctions on Russia¡¯s United Shipbuilding Corporation, which were extended last year to include all entities attached to the company, Indian banks are not in a position to grant guarantees for the contracts.

¡°No Indian bank can deal with any entity on the SDN list as this will get them into major trouble with the US. As international transactions involve trade in dollars, no bank can afford to be noncompliant with the sanctions list,¡± an official told ET on condition of anonymity.

AFP

The matter can be resolved only if India amends its procurement rules to give Russian entities special exemption from the clause mandating bank guarantees, the people cited earlier said.

The last deal India signed with a Russian shipyard was to overhaul its Kilo class submarines at the Zvezdochka shipyard. Two Indian submarines are already undergoing the life extension programme. However, Zvezdochka too was named in the extended list of sanctions by the US late last year.

One of India¡¯s biggest deals with Russia till date, for the S-400 missile shield, too, faces uncertainty due to the sanctions. Almaz-Antey, which manufacturers the cutting-edge missile shield, is also on the SDN list, making it impossible for Indian banks and even private sector companies that have other overseas interests to deal with it.

¡°India may need to change its rules to allow the Russian companies to furnish guarantees either directly from Russian banks or have some other arrangements if these projects have to go through,¡± the official said.

AFP

Asenior team from Russia is expected to discuss the matter with the Indian side later this month. Russia has traditionally been India¡¯s largest military supplier, accounting for most major purchases by the air force, army and navy.

This position has, however, been strongly contested, with the US inking large deals in the past five years that have taken it to the top position.

India¡¯s plans for military acquisitions in the future envisage mostly joint development and production of equipment domestically with assistance from foreign vendors.