As the Ukraine war grinds on, Russia, India seek ways to keep defence trade afloat

Source: The post is based on the article “As the Ukraine war grinds on, Russia, India seek ways to keep defence trade afloat” published in The Hindu on 11^th April 2023.

Syllabus: GS 2 – International Relations

Relevance: concerns associated with import payments to Russia

News: Russia is currently facing problems with India in resolving payment problems for its defence exports.

What are some of the defence systems being exported by Russia to India?

Russia is now carrying out numerous large contracts with India, including the S-400 systems and two Project 11356 frigates.

The other deals include procurement of additional and modernisation of existing Sukhoi Su-30 MKI and upgrade of MIG-29s.

Moreover, India’s total imports from Russia rose by five times from $8.5 billion in April 2022 to $41.6 billion in February 2023, driven mainly by oil supplies.

As per Stockholm International Peace Research Institute (SIPRI), Russia’s share of arms imports to India fell from 69% in 2012-17 to 46% in 2017-21, while Russia remained the key defense supplier to India.

However, concern lies with the payment of the imports.

What are the concerns with payment?

Currently, Russian banks create vostro accounts with authorized dealer banks in India and pay in rupees, although Russia wants to pay in rubles.

However, the problems with India in adopting ruble payment are – a) the concerns of the Indian financial sector which is overall slowly adopting new mechanisms, and b) lack of trust on the Russian ruble.

After suffering a major shock last year, India is doubtful about the ruble, and there is an understanding that it is almost impossible to evaluate it correctly.

Therefore, the India has no particular interest in trading in the Russian currency and thus, India relies on payments in the rupee.

What is the way ahead?

Russia is upgrading its weapons after testing them in the real time war with Ukraine. This gives Russia a great advantage in terms of defense exports.

Therefore, the issue of payments needs to be resolved in the upcoming meeting between the two nations.