Payment Crisis Leads To Uncertainty Over India-Russia Defence Deals

Relevance: GS 2 - Effect of policies and politics of developed and developing countries on India’s interests

(Source: The Hindu, 08/21/23)

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Why in the news?

The article focuses on the challenges and uncertainties surrounding major defense deals between India and Russia, notably the S-400 deal, against the backdrop of the conflict in Ukraine. The S-400 deal, signed in 2018, has seen delays due to payment issues, prompting both countries to explore alternative payment methods.

Uncertainty over India-Russia defence deals

• S-400 deal: Three of the five S-400 regiments contracted under a $5.43 billion deal in 2018 have been delivered but the other two are delayed.
• Krivak or Talwar-class stealth frigates: The construction of Krivak-class stealth frigates for the Indian Navy in Russia has also been subject to delays. These naval vessels are now postponed to May and October 2024.

Issues

• Rupee-Rouble arrangement: Russia was shut out of the global SWIFT system for money transfers after February 2022, India and Russia chose the Rupee-Rouble route to settle payments
• However,it has failed to solve the crisis due to the huge trade imbalance and Rupees accumulating on the Russian side.
• While minor payments have resumed, major transactions for significant deals remain stalled.
• Sanctions: Companies and traders are apprehensive about possible threat of U.S. sanctions under CAATSA (Countering America’s Adversaries Through Sanctions Act), which is preventing trade from expanding.
• The Ukraine war has further compounded the problem.

What is the S-400 system?

• The S-400 is Russia's most advanced long-range surface-to-air missile defense system.
• Capable of handling multiple objects: It is capable of tracking multiple incoming objects, including aircraft, missiles, and unmanned aerial vehicles (UAVs), in a radius of a few hundred kilometers and launching appropriate missiles to neutralize them.
• It can defend its air defense bubble from rockets, missiles, cruise missiles, and even aircraft.
• Radars: It has radars that can detect an incoming object up to 1,000 kilometers away, track several dozen incoming objects at the same time, distribute targets to missile systems, and ensure a high success rate.
• Targets: The S-400 has been specifically designed to detect and destroy a variety of targets, including strategic bombers, electronic warfare, early warning, and reconnaissance aircraft, and fighter jets such as the F-16 and F-22.

What is the significance of the S-400 for India?

• The weapon system is capable of neutralizing assets, so India's deployment will provide a significant boost to its air defense capability.
• The S-400 fills critical gaps in India's national air defense network and would complement the country's indigenous Ballistic Missile Defense system developed by the Defense Research and Development Organization.
• Handling a two-front threat: Once inducted, the S-400 will be a game-changer, partially compensating for the force's dwindling fighter strength, especially in light of the growing two-front threat from China and Pakistan.

SWIFT

• The Society for Worldwide Interbank Financial Telecommunication, or SWIFT, is the world’s leading provider of secure financial messaging services.
• SWIFT is a global member-owned cooperative that was founded in 1973 by 239 banks from 15 countries and headquartered in Belgium.
• The SWIFT Standards group maintains several important message standards.
• The use of standardized messages and reference data ensures that information exchanged between institutions is unambiguous and machine-friendly, facilitating automation, cost reduction and risk mitigation.
• Through SWIFT, banks, custodians, investment institutions, central banks, market infrastructures and corporate clients can connect with one another to exchange structured electronic messages for common business processes like making payments or settling trades.
• SWIFT is a cooperative society under Belgian law and is owned and controlled by its shareholders, representing approximately 3,500 financial institutions across the world.

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FAQs

MCQ

Question: Consider the following statements:

1. The S-400 is Russia's most advanced long-range surface-to-air missile defense system.
2. It is capable of tracking multiple incoming objects, including aircraft, missiles, and unmanned aerial vehicles

Which of the above statements is/are correct?

(a) 1 only

(b) 2 only

(c) Both 1 and 2

(d) Neither 1 nor 2