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Unable To Clear Rouble Payments, India Orders Indigenous Weapons To Use Up Defence Capital Budget

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Various modalities to clear Russia’s pending dues will be discussed between Moscow and New Delhi on Friday with Russian foreign minister Sergey Lavrov making a two-day visit

India has placed a number of orders to procure indigenous equipment and weapon systems in the last three weeks to exhaust its defence capital funds after it was unable to clear sanctions-hit Russia’s scheduled payments running into Rs 11,500 crore approximately, officials familiar with the matter told News18.

The latest orders include 15 Light Combat Helicopters for Rs 3,887 crore—cleared by the cabinet committee on security earlier this week—10 of which are for the IAF and five for the Army and Instrumented Electronic Warfare Range with Rs 1,109 crore for the IAF.

They also include a Rs 1,993 crore contract with Bharat Electronics Limited (BEL) for Advanced Electronic Warfare Suite for upgrading MiG-29 fighter jets of the Indian Air Force (IAF) and a contract with M/s Larsen and Toubro Limited to acquire two multi-purpose vessels for the Indian Navy for Rs 887 crore, among others.

‘Due’ Diligence

Sources across the services told News18 that not only has the advance amount for many of these new orders been paid, the first milestone payment for several of them has also been cleared. The payments made include over Rs 1,300 crore for the 118 Main Battle Tanks (MBTs) Arjun MK-1A for the Army, the order for which was placed last year with the Armoured Vehicles Nigam Limited (AVNL) formed after subsuming 12 ordnance factories.

India has been importing weapons and oil from Russia. Sources in the government said the defence ministry was looking to clear Russian payments worth around Rs 11,500 crore by the end of the financial year 2021-22.

Some of the contracts for which payments had to be made to Russia include long-range surface-to-air missile system S-400, two P1135.6 class ships being constructed in Russia, an unspecified number of Smerch Multiple Rocket Launch Systems and rocket projectiles for them and Russian-made X-31 missiles, among other missiles.

The defence services were banking on clearing much of these Russian payments to fully utilise their capital budgets by March 31 when the financial year of 2021-22 draws to a close but were unable to do so when Russia was hit by stringent economic sanctions after it launched an offensive on Ukraine in February.

Fraught with the risk of surrendering a major chunk of the capital budgets, the government identified contracts that were in advanced stages with defence public sector undertakings and fast-tracked milestones of ongoing contracts to ensure no capital budget for 2021-22 is surrendered.

Officials privy to the latest developments told News18 that these series of orders for indigenous weapon systems and equipment have met twin objectives: one, that the defence capital budget has been fully utilised for 2021-22 and, second, it has helped further the government’s Atmanirbhar (self-reliance) push.

This is significant as the Army, IAF and Navy had spent merely about 40%, 70% and 90% of their capital outlay until January end. News18 was the first to report this on January 28.

“The capital budget would have been surrendered if it was not exhausted by March 31 and pending payments would have become an added liability for the next financial year,” an official said.

The official added that a number of last-minute orders were thus placed and payments were also made soon after. The majority of the orders were placed with indigenous firms and a few other scheduled foreign payments were made.

Way Forward On Russia

Russia’s pending dues on oil and weapons continue to remain a concern for India.

Russian foreign minister Sergey Lavrov, who is on a two-day visit to New Delhi, is scheduled to meet Prime Minister Narendra Modi and external affairs minister S Jaishankar on Friday. As per government officials, New Delhi and Moscow will discuss several alternative options for rouble payments.

At present, no Indian bank has agreed to process any Russian transaction.

The two Russian banks VTB and Sberbank—which were processing Russian payments since 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)— have also been placed under sanctions.

A second official told News18 that so far these Russian banks processed the payments from India by keeping the euro as the base.

“Since that is not possible now, keeping the Chinese currency as the base could feature in the discussions, an idea India May be reluctant about,” the official said.

As per a Bloomberg report, India is also considering making rupee-rouble-denominated payments using Russia’s messaging system SPFS.

The system was developed by the Central Bank of the Russian Federation for making bilateral payments.

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