Ukraine crisis leaves India’s Modi walking a fine line between the US and Russia

India has been slow to join the US and other democracies in denouncing and sanctioning Russia over its actions against Ukraine
Delhi must act wisely as it relies heavily on Moscow not only for its arms purchases but also for fertilisers that keep its agriculture sector growing

Danil Bochkov

Published: 9:15am, 18 Mar 2022

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Since the onset of its military action against Ukraine, Russia has found itself in an awkward diplomatic position in which it has been almost completely alienated internationally, with just a handful of states expressing support or, at best, neutrality. India’s neutrality might have come as a surprise to the United States and Europe, which have tried to push New Delhi to take a harder line against Russia.

India’s stance can be attributed to its heavy reliance on importing Russian arms, which constituted almost half of its weapons imports from 2016 to 2022, with about 85 per cent of all Indian military equipment originating in Russia or the Soviet Union.

However, other reasons are also at play: India has long been noted for its independent foreign policy and non-aligned status, which arose in the 1960s in opposition to Cold War bipolarity.

New Delhi has adeptly navigated the roiling waters of regional and global politics in recent years. While participating in the US-led Quadrilateral security grouping and forging closer ties with Washington to balance against China, it has also improved relations other major nations by embracing the Russia-India-China grouping, the BRICS bloc and the Shanghai Cooperation Organisation.

This diversified cooperation was highlighted by Indian Prime Minister Narendra Modi, who said “India has a connection with countries involved in the war … India’s needs are connected to these countries”. Unlike its American and European partners, India is not willing to risk its economic ties with Russia by siding with sanctions aimed at the Russian economy.

India has deepened cooperation with Russia in the energy and banking sectors, with sanctioned Russian banks VTB, Sberbank, Promsvazbank and Gazprombank operating offices there. Russian state-owned energy giant Rosneft has pledged to supply India Oil with up to 2 million tonnes of crude by the end of this year.

02:11

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Now India is looking for more energy purchases from Russia at a discounted price. After the mass exodus from the Russian energy sector by Western stakeholders, Moscow said it was eyeing more Indian investment in its oil and gas projects. Russian oil and petroleum exports to India are close to US$1 billion, with potential for growth.

Unlike China and Turkey, which the US sanctioned over acquiring S-400 air defence systems, India managed to avoid such penalties for its purchase. That might be difficult to replicate, though, as some voices on Capitol Hill are complaining about the actual value of India’s commitment to its US partnership after its refusal to vote against Russia at the UN General Assembly.

Bilateral trade between Russia and India reached US$8.1 billion between April 2021 and March 2022 – not a large amount given the size of their respective economies. The target of US$30 billion in trade by 2025 that Modi and Russian President Vladimir Putin unveiled in December is unlikely to come to pass amid the sanctions against Russia, with bilateral trade still dependent on US dollar-denominated transactions.

Russia and India have been increasing trade in their national currencies. In 2017, more than 77 per cent of bilateral trade was handled in US dollars. Now, rupee-rouble transactions account for roughly 30 per cent of their trade – a fivefold increase since 2013, which is still a small volume given the size of their economies.

04:01

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It is underpinned by the fact that, as of March 11, US$400 million to US$600 million in payments by Indian exporters are awaiting processing from Russia. India’s nearly US$3 billion trade deficit with Russia makes it hard to fully shift to trade in national currencies, which is mostly done for arms deals to evade sanctions.

New Delhi is growing wary of the Russian economic slowdown’s implications for its own economy. The rupee has fallen against the US dollar, making imports more expensive, and Indian consumers could see inflated prices amid skyrocketing oil and gas costs.

Although India makes up only a small percentage of Russia’s natural gas and oil exports, it is a leading importer of fertilisers. It reached a multi-year fertiliser import deal last month with Russia, which is the world’s second-largest producer. India’s fertiliser imports from Russia rose 469 per cent last November, to US$106 million.

India gets half of its potash from Russia and Belarus. There are reports that India is looking for a rupee payment mechanism with Russia to avoid sanctions, given that the Indian agriculture sector could be in big trouble if it is cut off from Russian fertiliser supplies.

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India could begin to slowly pivot away from Russia to ensure ties remain stable with the West. In fact, there are some signs of this happening, such as New Delhi seeking greater diversity in its arms purchases.

Analysts have concluded that India’s military cannot maintain its effectiveness without Russian equipment. Putin’s December visit to India included a pledge to implement the S-400 agreement, whose US$5.4 billion price tag was settled in a rupee-rouble exchange.

US officials have said they recognise the complexity of India’s military reliance on Russia and would not impose any restrictions that would harm the partnership. Even so, Washington might begin to lose patience if New Delhi does not show clear signs of distancing itself from Moscow.

This may well include, in America’s eyes, a reorientation of its arms purchases and energy imports to the US. That would require rejecting opportunities in the Russian commodities market, which could come at an appealing price amid Western sanctions and import restrictions.

Against the backdrop of December’s visit by Putin that resulted in military cooperation agreements and reassurances of a “long-standing friendship”, Modi now finds himself in a tricky position, having to walk a tightrope between Moscow and Washington.

Danil Bochkov is an expert at the Russian International Affairs Council