Sanctions against Moscow and the Future of India-Russia Ties
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JFSS Senior Research Fellow / Head of the Stockholm Centre for South Asian and Indo-Pacific Affairs at the Institute for Security and Development Policy Dr. Jagannath Panda
The crisis in Ukraine has brought to international scrutiny many countries foreign policy including India's policy approach towards Russia. Critics and scholars are monitoring closely India's relations with Russia, and how it will evolve in times to come. The government in New Delhi has begun assessing the impact sanctions against Moscow over the Ukraine War will have on India. New Delhi's bilateral trade with Russia in 2020-2021 amounted to US $8.1 billion, of which Indian exports were approximately US $2.6 billion and imports about US $5.5 billion. The impact of international sanctions that cut-off Russian banks from the SWIFT inter-banking system for cross-border transactions will therefore certainly have an impact on sectors like defence equipment, electrical machinery, steel products and inorganic chemicals and fertilizers. While the effects will be significant, the Minister of State for External Affairs, Meenakshi Lekhi, also stated that “India's relations with Russia stand on their own merit”.
New Delhi has a vested interest in ensuring cooperation with the long-standing partner despite disruptions and India is already taking steps to sustain trade. Concurrently, with the sanctions, Moscow has been forced to sell oil at a heavily discounted rate, and India has eagerly acted on this opportunity. 5 million barrels have already been purchased by two major state-run oil companies in the last few weeks. On one hand, this can be viewed as undermining the united effort to ostracise the Russian economy and, at such a pivotal moment, may complicate Washington-New Delhi relations. However, the pragmatism of the decision from India's perspective should also be considered. India imports approximately 80% of its oil needs, and in light of the financial repercussions of the pandemic and the rising global energy prices, discounted Russian oil is a welcome opportunity.
In the defence sector particularly, wherein India sources about 70 percent of its equipment from Russia, access to defence technology may be impeded in the short term. Yet, both India and Russia have signed an agreement for a program for defence cooperation with several major projects in the pipeline over the next 10 years, as well as launching a new roadmap for science, technology and innovation cooperation.
Furthermore, India is already devising an alternative payment mechanism to maintain its trade with Moscow. For example, the recently concluded oil deal with Russia via a rupee-rouble arrangement points in this direction. The aim would be to enable the purchase of Russian oil and essential fertilisers for India's agrarian economy, as well as facilitate outstanding payments. There are ongoing concerns that the sanctions will make payments for Russian defence equipment in particular more difficult and subject to delays which would impact their defence trade.
However, it is a pressing concern for New Delhi that the US and the West are possibly contemplating widening sanctions to include ‘secondary sanctions', which would have a much more direct impact on India. These could be on Russian entities and individuals, but also on those in ‘third party jurisdictions who are not complying with US sanctions or undertaking systematic efforts to weaken or evade them. If these new sanctions are imposed, the Modi government believes that India will likely suffer the most because of their ongoing trade plans with Russia.
Considering the immense dependence of India in the Russian defence equipment, as well as India's rising threat calculus vis-à-vis China in a new security environment, it is unlikely that India will be willing to cut-off procurement from Russia. However, at the same time, New Delhi will no doubt be cognizant of the fact that it must account for future disruptions in defence equipment and spare parts supply chains as it moves forward. Accordingly, India will likely further emphasise its efforts for indigenous development and production, as well as seek to diversify its arms procurement by expanding relationships with other key partner states like France and Sweden.
While Russia ranks as India's single largest arms exporter, it is worth noting that Russia's share in India's total defence imports declined to about 49 percent from 2016 to 2020. This decline has been accompanied by a simultaneous push towards domestic manufacturing and indigenous efforts prioritised by the government. While India is not in a position to delink from Russia, New Delhi will likely push for further reducing dependence in the long-term to ensure it does not become impacted by future disruptions. In other words, New Delhi's aim will be to move away from a buyer-seller equation to a partnership driven by military-technical cooperation.
Multilaterally, to some extent, the impact of the Ukraine crisis is already evident on the BRICS grouping, with the BRICS bank – the New Development Bank (NDB) – forced to halt all transactions in Russia owing to “unfolding uncertainties and restrictions”. Beyond this however, Russia's invasion is undoubtedly a real test for the collaboration and cohesion that BRICS has built over time. At present, Brazil, South Africa, India and China have all abstained from the UN vote to condemn Russia's actions – Brazil, South Africa and India due to their stated neutral position and China over its more conciliatory stance towards Moscow. However, as the situation unfolds, whether the BRICS grouping will be able to present a united front remains to be seen. More importantly perhaps, the Ukraine crisis will put a damper on the strategic efforts of the group to collaborate on pushing forth agendas of the developing nations.
Moreover, the developments of the Asian Infrastructure Investment Bank (AIIB) are also significant. In a statement released in early March, the AIIB announced that ‘all activities relating to Russia and Belarus are on hold and under review', citing the importance of adherence to international law. What is most interesting is that Russia is the third largest shareholder of the bank, after China and India respectively. Thus, the pressure on multilateral organisations to take action following the invasion has outweighed the ties between Moscow, Beijing and New Delhi, and the bank's founding principle of neutrality.
Chinese Foreign Minister Wang Xi told the Shanghai Cooperation Organisation (SCO) Secretary General, Zhang Ming, that the organisation “should play a more active role amid the implications caused by the Ukraine Crisis”. In contrast to the past when Beijing attempted to block Moscow's attempts to get the SCO to support Russia's action in Georgia (2008) at a Summit in Tajikistan, Putin has proclaimed that the approaches of the SCO members ‘‘have turned out to be identical or similar'' over the Ukraine situation. In light of the sanctions imposed on Moscow by the West, the SCO is increasingly being viewed by Russia and China as an avenue to support Russia, by turning to its allies in Eurasia. Thus, efforts such as the establishment of the SCO Development Bank will likely be explored.
New Delhi views the SCO with more of a focus on Asia than establishing closer ties with Central Asia. Shared security interests over time have led to the development of India's ‘Look North' and ‘Central Connect Asia Policy', however, these are not more important than the guiding ‘Act East' policy. Though Pakistan and India have become formal members of the SCO, the agenda is still mostly influenced by Russia and China. The agenda espoused by them is to reduce Russia's isolation through development in Central Asia; a direction in which New Delhi does not necessarily wish to go. Conclusively, India's relations with Russia will continue to be influenced by a number of bilateral, regional and international factors that come as constant reminders that Moscow is still an effective power in India's geostrategic calculation.
*Dr. Jagannath Panda is the Head of the Stockholm Centre for South Asian and Indo-Pacific Affairs (SCSA-IPA) at the Institute for Security and Development Policy (ISDP), Sweden. Dr. Panda is also the Director for Europe-Asia Research Cooperation at the Yokosuka Council of Asia-Pacific Studies (YCAPS); a Senior Fellow at The Hague Centre for Strategic Studies (HCSS), The Netherlands.
*Dr. Jagannath Panda is the Head of the Stockholm Centre for South Asian and Indo-Pacific Affairs (SCSA-IPA) at the Institute for Security and Development Policy (ISDP), Sweden. Dr. Panda is also the Director for Europe-Asia Research Cooperation at the Yokosuka Council of Asia-Pacific Studies (YCAPS); a Senior Fellow at The Hague Centre for Strategic Studies (HCSS), The Netherlands.