Russian foreign minister Sergey Lavrov may push India for alternative payment mechanisms

Prime Minister Narendra Modi participated in a Quad Leaders’ virtual meeting on March 3 with the leaders of the US, Japan and Australia.

True to its historic non-aligned stance, India has so far excused itself from condemning Russia or supporting Western sanctions against Moscow.

UN abstentions

India has steadfastly called for de-escalation from both sides and a return to the discussion table. It has not taken part in the long list of sanctions piled on Russia by the US, the European Union and Western allies. Neither has it asked businesses to continue trade with Russia.

Crucially, India abstained from three major votes held at the United Nations on the subject. India justified its abstention during the last two resolutions brought against Russia at the United Nations General Assembly, saying the text did not place a stronger focus on peace talks between Ukraine and Russia. It also abstained from similar resolutions brought by Russia.

“But this constant calibration between major allies across the divide has been based on the assumption that the active conflict part of the crisis would be over soon,” a senior official said.

Foreign policy watchers said Lavrov’s visit may finally force India to reveal its hand. Officials said the visit is expected to be a “functional” one without ceremony and minimal public interaction. Lavrov is expected to brief New Delhi on the latest situation in Ukraine and provide a peek into Moscow’s plans in Ukraine and the greater East Europe region.

The ministry of external affairs is set to announce the dates of Lavrov’s visit after foreign minister S Jaishankar returns from his trip to the Maldives and Sri Lanka by March 30. Jaishankar’s visit to the island countries is aimed at popularising the government’s Indian Ocean policy doctrine ‘SAGAR’ (Security And Growth for All in the Region).

However, some reports have said Lavrov might come as early as March 31 for a two-day visit, after concluding a trip to China. Incidentally, British foreign secretary Liz Truss is expected to visit India on March 31.
As Western sanctions on Russia’s banking system, state-owned corporations, and the wealthy class begin to bite, the Russian foreign minister is expected to push India to adopt payment mechanisms that give a wide berth to the dollar.

India’s trade with Russia remains suspended after banking channels shut down following sanctions imposed by the US and its allies. A bulk of crude oil and diamond imports also hang in limbo as India is yet to officially allow trade in rupees or Russian roubles.

Bilateral trade with Russia stood at $10.75 billion in April-January, official data shows. Commerce department officials said trade for February and March will be minuscule because most shipments had been frozen.

Trading in local currencies (rupee-rouble trade), or a rupee auction by the Russian central bank may have been pointed out as possible alternative mechanisms at inter-ministerial meetings on the challenges of trading with Russia. But officials say both have been found to work only partly and lead to much slower trade flows.

Skewed trade

India has had a history of trading in local currencies with Russia and Iran. With both, the mechanism had to be abandoned as a result of balance of payments issues whereby skewed trade flows inevitably led to one nation ending up with a large reserve of the other’s currency that couldn’t be used to buy anything else.

Media reports have suggested that a system whereby each nation is paid back in its own currency has found support among officials. But the commerce department is not in favour of such a move, officials said.

While Russia’s trade and investment ties with India have shrunk in comparison with other major partners such as the US, the European Union and Japan, military ties between Moscow and New Delhi remain unparalleled. Apart from a 10-year defence cooperation pact signed in 2021, the share of Russian origin weapons and defence platforms operated across the Indian armed forces is as high as 85 percent, according to government estimates.

“Moscow would want assurances that India doesn’t renege on its interests in buying Russian military hardware such as the S-400 Triumf surface-to-air missile defence systems,” an official said.

New Delhi is under pressure from the US to systematically reduce weapons purchases from Russia. US politicians have asked the Joe Biden administration to sanction India under the Countering America’s Adversaries Through Sanctions Act (CAATSA) law.

India inked a $5.43 billion deal with Russia to procure the four missile defence systems in October 2018 after CAATSA came into effect. India has repeatedly run afoul of the rule owing to its deep defence ties with Russia, but the US has not gone beyond the occasional rebuke, choosing to settle matters in private.

Things took an ugly turn after Moscow flagged remarks by US assistant secretary of state for South Asian affairs Donald Lu, who told the US Congress that India had cancelled large orders of MiG-29 fighter jets, Russian helicopters and anti-tank weapons. India has, however, not officially confirmed this.