The Centre has constituted a high-level inter-ministerial task force of senior officials to look at possible implications on India of the fresh economic sanctions announced against Russia by the US, the EU, and others. The task force may also put in place a strategy to deal with it.
“It is not yet clear what the final shape the sanctions against Russia would take. But we have a lot at stake as we are engaged in multiple sectors with Russia including defence, energy and trade in goods. So, all developments need to be closely assessed,” a person tracking the matter told BusinessLine.
The taskforce comprises Secretaries and other senior officials from across Ministries and Departments such as External Affairs, Defence, Finance, Home, Commerce & Industry and Petroleum and Natural Gas.
Following Russia’s decision to invade Ukraine on Thursday, motivated by the country’s alleged growing proximity with NATO, additional economic sanctions were announced against it by major powers such as the USA, the European Commission and the United Kingdom.
Russia is India’s 26th largest trade partner, with exports in 2020-21 valued at $ 2.6 billion and imports at $ 5.4 billion.
Although, overall the export value is not high, but sanctions blocking payment channels could hurt certain sectors, such as pharmaceuticals, tea and mobile phones, more than others. India’s primary imports from Russia include crude oil, petroleum products, coal, gold, metals and fertilisers, which, too, need to be monitored.
“We are still awaiting US Office of Foreign Assets Control (OFAC) sanctions guidelines as they have not been updated after February 21,” an anxious Delhi-based exporter said.
India has previously used rupee payment mechanisms. The mechanism was used (by India) with Iran after it came under Western sanctions for its nuclear weapons program. The programme was introduced in 2012 and worked well for several years. Such a mechanism may also be explored as an option with Russia, if required.
Defence Deals
A primary area of concern for India is, however, the uncertainty over the execution of India’s defence deals with Russia including delivery of the S-400 missile systems. The S-400 is a mobile long-range surface-to-air missile (LR-SAM) system developed by Almaz-Antey, a Russian state-owned enterprise. It possesses the capability to take down multiple aerial targets including stealth fighter jets, bombers, cruise and ballistic missiles, and even unmanned aerial vehicles (UAVs).
“We don’t yet know all details of the economic sanctions and to what extent they would apply on third countries. We need to prepare for all possibilities though,” the source said.
Earlier this week, the Russian Charge d’Affaires to India, Roman Babushkin, had hoped that a slew of sanctions imposed on it (Russia) and escalating tensions with Ukraine will not impact its ongoing military projects with India. “We will continue our work with our Indian partners in defence areas. We have big plans and we hope that our partnership will continue at the same level which we are enjoying today,” he had said during a conference.
Tea exports too are bracing for a hit.
Tea exports to CIS nations account for nearly 23-24 per cent of total exports (of tea) which stood at ₹744 crore for 40.17 million kg. Of these exports to the Russian Federation stood at 30.89 mkg, estimated at ₹558 crore, Export to Ukraine during the period was at 1.6 mkg (₹30 crore).
Evaluating Implications
Exporters say they are yet to be apprised of the full details of these sanctions and to what extent these would apply on developing nations. They are also evaluating the implication the sanctions will have in executing pending orders.
According to A Sakthivel, President, FIEO, the sanctions have added to the uncertainty for exporters and who have been advised to take a “wait & watch” approach.
“We hope that a Wind-Down period would be available in the OFAC sanctions so as to take care of transactions in the pipeline,” he said adding that shipments which are at the ports or in the voyage may be quickly cleared and loss to exporters, either during transit or in payment, may be sympathetically considered by the Government.