Economic Undertakings

Unable to clear ruble payments, India orders indigenous weapons to deplete defense capital budget

India has placed a number of orders for the purchase of indigenous weapons equipment and systems over the past three weeks to deplete its defense capital funds after being unable to meet scheduled payments Russia hit with sanctions amounting to around 11,500 crore rupees, officials familiar with the matter said. News18.

The latest orders include 15 light combat helicopters for Rs 3,887 crore – cleared by the cabinet committee on security earlier this week – of which 10 are for the IAF and five for the army and the 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 the upgrade of Indian Air Force (IAF) MiG-29 fighter jets and a contract with M/s Larsen and Toubro Limited to acquire two multi-vessels for the Indian Navy for Rs 887 crore, among others.

‘Due diligence

Sources from all departments told News18 that not only had the advance amount for many of these new orders been paid, but the first milestone payment for several of them had also been made. Payments made include over Rs 1,300 crore for the 118 Arjun Mark 1A main battle tanks (MBT) for the army, the order of which was placed last year with Nigam Armored Vehicles Limited (AVNL) formed after encompassed 12 ammunition factories.

India imports weapons and oil from Russia. Government sources said the Ministry of Defense is seeking to clear Russian payments worth around Rs 11,500 crore by the end of the 2021-22 financial year.

Some of the contracts for which payments have had to be made to Russia include the S-400 long-range surface-to-air missile system, two P1135.6-class ships being built in Russia, an undetermined number of launch systems multiple Smerch rockets and rockets projectiles for them and Russian-made X-31 missiles, among other missiles.

The defense services were counting on offsetting much of these Russian payments to fully utilize their capital budgets by March 31, when the 2021-22 fiscal year draws to a close, but were unable to doing so when Russia was hit with tough economic sanctions after its launch. an offensive on Ukraine in February.

Faced with the risk of divesting a large part of the investment budgets, the government identified contracts that were at an advanced stage with public sector defense companies and accelerated the milestones of contracts in progress to ensure that no investment budget for 2021-22 is abandoned.

Officials familiar with the latest developments told News18 that these rounds of orders for indigenous weapons systems and equipment have achieved a dual purpose: first, that the defense capital budget has been fully utilized for 2021- 22 and, secondly, he helped advance the government’s atmanirbhar. (autonomy) push.

This is significant as the Army, IAF and Navy had only spent around 40%, 70% and 90% of their capital expenditure through the end of January. News18 was first to report it on January 28.

“The capital budget would have been abandoned had it not been exhausted by March 31 and the pending payments would have become an additional 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 orders have been placed with local companies and a few other scheduled foreign payments have been made.

Advance on Russia

Russia’s pending oil and arms rights continue to be of concern to India.

Russian Foreign Minister Sergei Lavrov, who is on a two-day visit to New Delhi, is due to meet Prime Minister Narendra Modi and Foreign Minister S Jaishankar on Friday. According to government officials, New Delhi and Moscow will discuss several alternative options for ruble payments.

Currently, no Indian bank has agreed to process a Russian transaction.

The two Russian banks VTB and Sberbank – which had been processing Russian payments since 2018, when India signed the S-400 deal with Russia a year after the US passed CAATSA (Countering America’s Adversaries Through Sanctions) Act) – were also placed under sanctions.

A second official told News18 that so far these Russian banks have been processing payments from India using the euro as the basis.

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

According to a Bloomberg reportIndia is also considering making ruble-denominated payments using the Russian SPFS messaging system.

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

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