India and Russia have agreed on a new currency exchange method through their national currencies for multibillion-dollar arms deals, in order to avoid risks caused by the U.S. threat of sanctions and trading restrictions.
The defense deal would enable India to pay in INR for its first installment soon for two warships that Russia is building for the Indian navy, two officials familiar with the purchase revealed in New Delhi, without explaining much. Defense contracts will be settled in rubles and rupees under a payment agreement agreed by the central banks of Russia and India, revealed by an official in Moscow.
India’s deal of purchasing S-400 Air Defense System signed in October is among agreements with Russia that are approximately worth $10 billion. It also includes joint production of Kamov KA-226T helicopters worth $1 billion, and four warships for the Indian Navy, with two of the vessels built in Russia and two being assembled at a shipyard in India under a technology transfer agreement.
While the new purchase agreement potentially opens the way for releasing billions of dollars in contract payments to Russia, it may still be dependent on India to win an argument from the U.S. President Donald Trump not to impose sanctions in response.
Russia has experienced an enormous struggle to balance sales by its strategic defense sector, which cost around $19 billion last year, mainly because of Washington that threatens of imposing sanctions to anyone who gets involved in the Russian arms deal. Despite the fact that the U.S. has imposed those sanction only once so far against China, the threat amid Russia’s arms export. Russia, the world’s second-biggest arms exporter after the United States has suffered a 17% drop in foreign weapons deals from 2014 to 2018 including declining purchases by India and Venezuela, according to the Stockholm International Peace Research Institute.