US Sanctions Hinder India's Plans To Buy Russian Weapons

India’s plans to acquire strategic defense equipment, including a $5.5 billion shipbuilding contract from Russia are at stake as Russian firms are unable to furnish the required guarantees from Indian banks following US sanctions.

As per Indian rules, it is mandate for all foreign vendors of defence equipment to furnish guarantees from designated Indian banks before bidding for any project, The Economic Times reported today.

Russia had in October last year signed an inter-governmental agreement with India for the sale of four Project 1135.6 class stealth frigates, two of which are to be made in India. The deal also involves creating shipbuilding infrastructure in India.  

Besides, Russia will be a main contender in an upcoming tender for a new class of conventional submarines under the P75I project of the Indian Navy. However, both these projects are likely to face major obstacle due to the US-imposed sanctions.

However, with the US-imposed Specially Designated Nationals (SDN) sanctions on Russia’s United Shipbuilding Corporation, which were extended last year to include all entities attached to the company, Indian banks are not in a position to grant guarantees for the contracts. No Indian bank is ready to deal with any entity on the SDN list as this will get them into major trouble with the US.

“As international transactions involve trade in dollars, no bank can afford to be noncompliant with the sanctions list,” an official said. The matter can be resolved only if India amends its procurement rules to give Russian entities special exemption from the clause mandating bank guarantees.

The final deal India signed with a Russian shipyard was to overhaul its Kilo class submarines at the Zvezdochka shipyard, which is also named in the extended list of sanctions by the US last year.

India S-400 missile shield acquisition too faces uncertainty due to the sanctions. Almaz-Antey, which manufacturers is also on the SDN list, making it impossible for Indian banks and even private sector companies that have other overseas interests to deal with it.