Hit by more Western sanctions on Russian banking channels, Moscow and New Delhi are now working out a new payment system for defence equipment already ordered, including leasing of the third nuclear submarine.

Sources in the Indian defence and security establishment also told ThePrint that another area of concern is appreciation of the Russian rouble vis-à-vis rupee. This means payment to Russia becomes more expensive for India.

In August last year, both rupee and the Russian rouble had the same value. But the Russian rouble is today valued at 0.75 against one rupee.

Asked about the impact of western sanctions on India-Russia defence deals, Russia’s Federal Service for Military Technical Cooperation (FSMTC) head Dmitry Shugaev said payments are made in accordance with the terms stipulated in the contracts.

He was speaking on the sidelines of the Army 2022, an international defence exhibition that was held in Moscow.

“As a result of the anti-Russian campaign unleashed by unfriendly countries, domestic military-technical cooperation entities, leading enterprises of the military-industrial complex and financial institutions are subject to various types of sanctions.

In this regard, payments in the US dollar and Euro in arms export transactions have been reduced to a minimum,” he said.

In 2019, both India and Russia had decided to make payments in local currency for defence deals.

New Sanctions Leading To Fresh Challenges

Russia has been pushing for a rupee-rouble transfer as a payment system for defence deals for the last few years, but India had been reluctant, given the depreciation in the Russian currency. However, now, the Russian currency has appreciated.

While India and Russia had worked out a simpler system for payments, the secondary sanctions imposed on Russia and other nations, including France following its invasion of Ukraine, has created fresh challenges.

The US, along with the European Union, have cut off seven Russian banks from SWIFT — the Belgium-based cross-border payment system operator – including the one that was being used for payments earlier by India. The slapping of newer sanctions and cutting off Moscow from SWIFT has impacted the payment capacity.

Russian sources admitted that some payments have fallen behind and both Moscow and New Delhi are in touch with each other to arrive at a solution.

“Today, Russian exporters of military products, like the entire economy, are operating in a new reality. Large-scale work is underway. State corporations and military-technical cooperation entities are in constant cooperation with financial institutions of our country, our foreign partners,” Shugaev said.

He added that Russian countermeasures against sanctions consist of a tailored approach to each of their customers, offering attractive conditions when concluding contracts, adjusting the payment forms and providing more flexible schemes, abandoning the dollar and switching to other currencies, including national ones.

“Many of the anti-sanction measures developed by the FSMTC of Russia are welcomed by our partners, as they are mostly in line with their national strategic interests,” he added.

Sources, however, explained that larger payments are an issue but talks are underway to ensure no delivery gets affected.

Russia has proposed the use of a SWIFT-like system developed by the Russian central bank. It involves rupee-rouble-denominated payments using Russia’s messaging system, SPFS, according to a report.

Under the proposal, rupees will be deposited to a Russian bank and converted into roubles. However, some undecided elements include whether the exchange rate will be fixed or floating.

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