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Categories: Diplomacy

India, Russia ties had begun to soar again even before Moscow honoured Modi

Russia’s decision to award PM Modi with its highest civilian honour is part of the renewed push by the two countries to strengthen ties, say govt officials.

24 April, 2019 12:38 pm

New Delhi: After four, long years, Russia has displaced the US in the fight for the top spot for Indian arms imports, winning deals amounting to $13 billion, including the S-400 air defence missile systems.

The defence deals are single-vendor agreements and have not been subject to a global tender or competitive bidding — thereby underlining not only the special partnership between Delhi and Moscow, but also the special relationship between Prime Minister Narendra Modi and Russian President Vladimir Putin.

Official sources, on the condition of anonymity, said Russia had regained the top spot in Indian arms purchases this year, after having lost it to the US for the previous four.

“The signing of various defence agreements with Russia, including the S-400 air defence missile systems, frigates and the lease of a nuclear submarine means that Russia is back in the reckoning as the highest source of Indian arms imports after four years, displacing the US,” said an Indian diplomat, who did not want to be named.

The defence relationship, inherited from the time of the Soviet Union, means that Russia not only continues to be India’s biggest defence supplier, but also that India is Russia’s biggest arms buyer.

Russian supplies of military hardware accounted for 58 per cent of the total Indian arms import during the period 2014-18, according to data by the Stockholm International Peace Research Institute (SIPRI). Both sides have signed a $5.2 billion pact for procuring five S-400 Triumf air defence units. India also plans to buy four Krivak-III class frigates, worth $2.2 billion, and has signed a contract for the lease of an Akula-1 class nuclear submarine, to be called Chakra III, worth $3 billion, for its navy.

India is also in the final stages of talks to purchase 200 Kamov-226T light choppers for $1.5 billion, and 48 Mi-17 V5 medium-lift helicopters for $1.1 billion.

According to Kanwal Sibal, former foreign secretary and a former ambassador to Russia, India continues to procure its armaments from Moscow more due to its flexibility in offering transfer of technology than Israel, the US and France, from whom India sources its armaments.

Defence and energy partnership

The defence deals — which are single-vendor agreements without the intervention of a global tender or competitive bidding — play a major role in sustaining what has been an all-weather relationship between New Delhi and Moscow.

The other leg of the partnership consists of investment in the energy sector, amounting to $20 billion in the past decade. This includes the 2017 sale of Essar Oil to Russian government-controlled oil-and-gas consortium Rosneft for $12.9 billion.

The India-Russia defence relationship, inherited from the time of the Soviet Union, means that Russia not only continues to be India’s biggest defence supplier, but also that India is Russia’s biggest arms buyer. Russian supplies of military hardware accounted for 58 per cent of the total Indian arms import during the period 2014-18, according to data by the Stockholm International Peace Research Institute (SIPRI).

Both sides have signed a $5.2 billion pact for procuring five S-400 Triumf air defence units. India also plans to buy four Krivak-III class frigates, worth $2.2 billion, and has signed a contract for the lease of an Akula-1 class nuclear submarine, to be called Chakra III, worth $3 billion, for its navy.

India is also in the final stages of talks to purchase 200 Kamov-226T light choppers for $1.5 billion, and 48 Mi-17 V5 medium-lift helicopters for $1.1 billion.

A senior Indian official, speaking on the condition of anonymity, told ThePrint: “The signing of various defence agreements with Russia, including the S-400 air defence missile systems, frigates and the lease of a nuclear submarine means that Russia is back in the reckoning as the highest source of Indian arms imports after four years, displacing the US.”

According to Kanwal Sibal, former foreign secretary and a former ambassador to Russia, India continues to procure its armaments from Moscow more due to its flexibility in offering transfer of technology than Israel, the US and France, from whom India sources its armaments.


Also read: India and Russia ink $3 billion deal for lease of third nuclear submarine


How the deals are done

Defence deals between India and Russia are mostly negotiated and clinched at the government-to-government level, with the Russian private sector coming into the picture only when offsets are being executed.

Russia’s defence exports are routed through its nodal government trading agency Rosoboronexport which represents state-run defence firms.

“When it comes to clinching defence deals with Russia, the mechanism to go through state-run Rosoboronexport has proved to be a fabulous strategy. And since it is government-to-government, there’s hardly any scandal or scam that comes into the picture,” said Rahul Gangal, partner at Roland Berger, a Munich-based consultancy firm that deals with various sectors like defence and pharma.

Gangal, however, added that issues arise when it comes to executing offsets, because Rosoboronexport’s charter is based on sale and not offsets. It becomes an issue for the Russians to deal with India’s large and varied private sector firms, he said.

Russia’s alignment with China & Pakistan

There is increasing concern in India as Russia is shifting more towards its adversaries, China and Pakistan. With China, Russia has established a robust defence relationship, offering it a range of items from fighter jets to missiles.

Beijing received its first batch of the S-400 in 2018, with the second batch expected to be delivered by July this year.

Russia is also developing a relationship with Pakistan, even as talks between the US and Taliban in Afghanistan, facilitated by Islamabad, continue.

“Although India had remained reticent when it comes to Russian actions in Ukraine and Crimea, New Delhi may not be able to ignore the strategic alliance that is growing between Russia and Pakistan and Russia and China,” said Sanjay Pande, chairperson of the Centre for Russian and Central Asian Studies at the School of International Studies, Jawaharlal Nehru University.


Also read: Russia remains India’s biggest defence supplier despite tilt towards US


Threat of sanctions

While talks for some of the defence deals amounting to $13 billion began under Manmohan Singh’s UPA government, it was under Narendra Modi’s NDA government that they witnessed considerable progress, despite the threat of Western sanctions.

However, it seems for the first time now that Moscow and New Delhi may be forced to change their payment mechanism to finalise these defence deals, in the backdrop of the threat of sanctions by the US under the provisions of the ‘Countering America’s Adversaries Through Sanctions Act’ (CAATSA).

“India and Russia need each other. So, they will have to find out some other payment mechanism to avoid the sanctions,” Gangal said.

Oil and gas ties

Besides defence, ties between both countries have been built on other sectors as well. India and Russia enjoy considerable partnership in energy — in the oil and gas sectors.

Both sides have invested more than $20 billion in the past decade in the energy sector. However, it was in 2016 that the long-pending deal between a consortium of Indian oil firms and Russia was concluded. The consortium, led by ONGC Videsh Ltd, invested $5 billion in Russia’s Vankorneft and TAAS-Yuryakh Neftegazodobycha oil-producing fields, picking up 49.9 per cent and 29.9 per cent stakes respectively.

“Energy ties between India and Russia are growing exponentially. Russian business sentiment continues to remain high about India. However, the only problem is while businesses in Russia are largely run by the government, in India, business is private sector driven, which creates issues sometimes. But ties at the government-to-government level are good,” said Amit Bhandari, fellow at Mumbai-based think-tank Gateway House.

During Russian President Vladimir Putin’s visit to in India in October last year, both sides agreed to increase two-way investment to $30 billion by the year 2025.

Low investment sectors

Investments from Russia to India continue to remain low in the telecom and IT sectors.

Russian telecom firm Sistema JSFC was one of the eight operators whose 2G spectrum and licences were cancelled by the Supreme Court in 2012. Sistema had also threatened to drag India to court under the India-Russia bilateral investment treaty.

This is a re-edited version of the report.

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Tags: India-Russia relationsNarendra Modi

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  • Instead of viewing Russia’s strategic partnership with China and its recent warmth towards Pakistan as a threat or a challenge, consider the possibility that it could help India improve its relationship with both long standing adversaries. The SCO provides a useful additional forum.