Rupee-Ruble Trade for Russian Defence Purchases to be Enhanced

Russia and India plan to enhance the scope of Rupee-Ruble trade in the procurement of defence equipment from Moscow, Russian Ambassador to India Nikolay Kudashev said.

“The mechanism of transactions in national currencies with regard to defense deals between Moscow and New Delhi has already been implemented, and Russia is interested in its progressive development,” Sputnik quoted Kudashev as saying.

“I am confident that our countries will find a solution that will put us outside the zone of dependence on the US-based payment system," Kudashev added.

India inked a $5.4 billion contract for S-400 missile systems with Russia in October last year and agreed to do the payment in rubles.

"It is not just S-400s, there are also other contracts which are subject to discussions on finding new modes of payment. It has not been finalized yet, but the general direction is greater use of national currencies. So there will be payments made in rupees and rubles, and we intend to take this forward on a mutually acceptable basis," Indian Ambassador to Russia D. Bala Venkatesh Varma had said in December last year.

Apart from the S-400 deal, India is also in advanced talks with Russia for an urgent procurement of 21 MiG-29 fighter aircraft in a contract valued at $847 million. The country had also approached Russia for purchase of additional 18 Sukhoi Su-30MKI  fighters to address the shortfall of combat aircraft for $819 million.

The other deals that India recently signed with Russia include a $940 million contract for 2 Talwar-class frigates, $960 million for 2 Russian-Built Admiral Grigorovich Frigates, a $1.1 billion order for 48 Mi-17 helicopters and joint production of KA-226T helicopters for $1 billion. India is also likely to have agreed to lease one of Akula-2 class SSN from Russia for reportedly $3.3 billion.

Under United States’ financial sanctions against Russian defence entities, no funds can be transferred to their accounts through the US banking system. Since the global currency movement happens through a US-controlled system known as SWIFT, almost all Russian defence industry and related firms have been shut out the dollar-denominated transfer system.

In addition to sanctions against Russia, the US also imposes secondary sanctions known as Countering American Adversaries Through Sanctions Act (CAATSA) against countries that buy Russian military equipment. The CAATSA was passed to punish Russia for its interference in elections and its involvement in Ukraine.

The US Senate Committee on Armed Services, however, exempted US’ strategic allies- India, Indonesia and Vietnam from CAATSA.

“The final piece of legislation will exempt just three countries—India, Indonesia, and Vietnam—from a robust sanctions regime enacted and imposed last year,” Sen. Jim Inhofe Republican Senator from Oklahoma, who helped craft the annual defense bill as part of the House Armed Services Committee was quoted as saying by the Daily Beast in July last year.

While India has been left out of the secondary CAATSA sanctions, Washington recently imposed sanctions against CAATSA against China for buying the S-400 system and Su-35 aircraft.