India is exploring at least three options to clear outstanding Rouble payments worth around Rs 28,000 crore against weapons delivered by Russia, The Indian Express has learnt. So far, India could not process these payments as Russia has been hit by stringent sanctions since its war with Ukraine began February last year. With most of India’s military hardware being of Russian origin, there have been concerns in the government about Russia’s ability to meet delivery schedules of critical spares and equipment if payments are further delayed. India imports oil and weapons from Russia. A Reuters report Saturday quoted sources to say Indian refiners have started paying in United Arab Emirates Dirhams instead of US Dollars for Russian oil purchased through Dubai-based traders. A top official told The Indian Express that India is currently considering three options to clear Russia’s dues for the weapons it has supplied, one of which is initiating Rouble payments in Chinese Yuan and UAE Dirham. The matter was discussed with Russia as well as internally between officials of the Defence and Finance ministries last year and it was decided that the modalities would be discussed with the Reserve Bank of India. Officials said that even as paying through the foreign currency of a third country is being explored, India has apprehensions because of the “sensitive” nature of most defence deals. “We are exploring the Dirham option but there is less comfort with the Yuan option,” an official said. The government is also exploring the option of making the Rouble payments through a hybrid form of sovereign bonds — a debt instrument issued by the government — in which the government will commit to pay the fixed amount later, inclusive of face value and interest. “It is being discussed if the dues to Russia can be shifted to a separate account in India and a sovereign guarantee issued over such deposits,” the official said. An official explained that it is being called hybrid because sovereign bonds are typically not used to clear dues. A third option being discussed is to offer some stakes to Russia in government-owned enterprises, which can liquidated in the future — a suggestion understood to have come from the Russian side. A second government official said the option could be exercised even in joint ventures of India and Russia, where India could, temporarily, make the required investments from Russia’s side when needed. This is not the first time that India has faced issues in clearing Russian payments. In 2018, when India signed the S-400 deal with Russia—a year after the United States passed the Countering America’s Adversaries Through Sanctions Act (CAATSA) — there were challenges in Rouble payments for defence-related supplies. India, however, managed to process Russian payments for defence-related supplies through Indian branches of two Russian banks VTB and Sberbank by disbursing the dollar equivalent in Indian rupees. However, these, too, were placed under sanctions after the Russia-Ukraine war broke out. Indian banks were not open to processing Russian payments after multiple sanctions were imposed on the country in the wake of the war with Ukraine. The Rs 28,000-crore worth Rouble payments for defence-related supplies which India would have to clear includes contracts with the Indian Air Force, Army, and Navy, as well as with Defence Research Development Organisation (DRDO) and various Defence public sector undertakings. India had to pay Rs 11,500 crore to Russia by the end of the financial year 2021-22. Some of the contracts with Russia include long-range surface-to-air missile system S-400; two Tushil class ships being built in Russia; an unspecified number of Smerch Multiple Rocket Launch Systems; rocket projectiles and Russian-made X-31 missiles, among other missiles, aside from spares for several weapon systems and equipment in the military’s inventory.
