Business / India may adopt new payment formula to avoid US sanctions

Hindustan Times : May 04, 2019, 11:39 AM

India may use a mix of Euros and a Rupee-Rouble transfer to pay for new defence platforms it is buying (or which it has recently bought) from Russia to avoid attracting sanctions under the Countering America’s Adversaries Through Sanctions Act of 2017 (CAATSA) even as New Delhi continues to explore options of a waiver from Washington, a senior official aware of the details said on condition of anonymity.

A team of senior defence officials led by the Defence Secretary Sanjay Mitra was in Russia last week and one of the issues discussed was the payment channel. Over next few years, India will have to pay approximately $ 7 billion to Russia for weapon systems such as the surface-air-missile Triumf or the S-400, the leasing of the second nuclear-propelled submarine, and the two warships being built in Russia.

The S-400 alone is likely to cost India Rs 40,000 crore alone. This surface-air-defence system detects incoming threats at a distance of about 350380 km and its induction is likely to give Indian air-defence a major boost.

The Donald Trump administration passed CAATSA in 2017 with the aim to hurt Russia, Iran and North Korea through punitive measure – primarily sanctions. As many as 39 Russian entities have been placed on the blacklist. An entity dealing with them could attract sanction .

Some of the Russian entities are Rosoboronexport, Almaz-Antey, Sukhoi Aviation, Russian Aircraft Corporation MiG, and United Shipbuilding Corporation. CAATSA came into force from April 2018; since then India has deferred its payments to Russia. India’s problems are at two levels: legacy equipment, most of which are of Russian origin, and which require spares or ammunition; and new weaponry.

“Washington understands India cannot stop using Russian origin equipment, payment for new equipment, however, is a tricky issue,” a second senior official aware of the details said, asking not to be identified.

The Indian delegation met Dmitry Shugev the head of the Federal Service for MilitaryTechnical Cooperation, the body that regulates military-technical cooperation issues, the second official added. Rupee-Rouble trade was discussed as one possible avenue, he said.

“India, however, needs to make some payment in hard-currency and that’s where the Euro comes in.” Some countries like China, for instance, have used barters to settle payments with Russia. but that isn’t an option for India. India doesn’t export enough to Russia to cover the entire amount of the cost. In 2018-19, India’s exports to Russia in 2018 stood at about $2.1 billion whereas it imported about $8 billion from Russia last year.

Payment in Euros to Russia isn’t entirely risk-free because it will have to be made through the SWIFT system (Society for Worldwide Interbank Financial Telecommunication) and attract sanctions. “While the issue of paying Russia without attracting sanctions hasn’t been sorted completely, we are closer to a solution,” the second senior official said.

“Sanctions are currency neutral, but there are a lot of ifs and buts, but I am sure that if India has the political will, a way forward will be there and the deal will go through,” said Nandan Unnikrishnan, distinguished fellow at the Observer Research Foundation.