Moscow’s industry and trade ministry, which oversees defence production to support Vladimir Putin’s full-scale invasion of Ukraine, drew up confidential plans in October 2022 to spend about Rs82bn ($1bn at the time) on securing critical electronics through channels hidden from western governments.
The plan, revealed in letters to a shadowy trade promotion body with strong links to the Russian security services, aimed to use “significant reserves” of rupees amassed by Russian banks from booming oil sales to India. It saw India as an alternative market to source crucial goods “previously supplied from unfriendly countries”.
Russia and its Indian partners targeted dual-use technologies — goods with both civilian and military applications — that are subject to western export controls, according to the documents, as well as western officials and two businessmen formerly involved in the trade. Moscow even envisaged pumping investment into Russo-Indian electronics development and production facilities, according to the leaked files.
The correspondence shows how Russia turned to New Delhi, even as Narendra Modi, the prime minister, brought the world’s most populous country closer than ever into the US orbit. During a state visit to Washington last year Modi signed a series of Indo-American co-operation agreements in areas ranging from advanced jet engines to artificial intelligence.
While the extent to which Moscow enacted its plan is unclear, detailed trade flow data suggest the relationship with India has grown deeper in the specific categories of goods identified in the Russian correspondence.
India’s ties with Moscow have been a growing source of friction with Washington. Wally Adeyemo, the US deputy treasury secretary, wrote in July to three of India’s top business organisations warning them that “any foreign financial institution that does business with Russia’s military industrial base risks being sanctioned itself”.
Adeyemo added: “This heightened sanctions risk exists regardless of the currency used in a transaction.”
While Modi has bemoaned the impact on developing economies of the invasion of Ukraine and urged the two sides to make peace, Delhi extended an economic lifeline to Russia after it was hit by western sanctions.
India has been a major buyer of Russian crude oil and the two countries’ total trade reached an all-time high of $66bn in the 2023-24 financial year, a fivefold increase on the past year before the invasion. Some of the trade has been transacted in rupees, leaving Russia with a surplus of the currency.
The Kremlin has admitted difficulties in repatriating Russia’s oil profits because of US sanctions and currency restrictions. Russian groups have used rupees to trade gold and purchase goods to evade the sanctions, according to people involved in the trade and western officials.
The Russian central government official involved in the leaked correspondence, Alexander Gaponov, is deputy head of the ministry’s “radio-electronics” division. It is an area of particular sensitivity because Russia is reliant on foreign-produced electronics for use in missiles, drones and electronic warfare.
Gaponov in October 2022 asked an opaque Moscow-based organisation with ties to Russian security services — the Consortium for Foreign Economic Activity and International Interstate Cooperation in Industry — to present plans for acquiring critical components from India.
Vadim Poida, the consortium’s president, replied that it had developed “specific plans” with the Russian electronics industry and “representatives of the relevant Indian state and private businesses” that had “high potential” for making use of the Kremlin’s rupees.
Poida outlined a five-stage plan to help Russia spend its rupees and establish a steady supply of dual-use components. Russia would set up a “closed payment system between Russian and Indian companies” beyond the oversight of western countries, “including by using digital financial assets”, Poida wrote.
Poida’s consortium estimated Russia could purchase up to Rbs100bn of components, including parts for “telecommunication, server, and other complex electronic equipment” previously bought through western countries.
Its members, Poida wrote, had begun pilot projects for producing Russian-designed components in India and conducted “detailed work on the issue of hiding information about the participation of Russian individuals and corporate entities, as well as the logistics of supply via third countries”.
Additional funds could be spent on backing joint ventures in India for electronics factories needed “to meet the needs of Russian critical information infrastructure”.
The consortium’s legal entity was set up in 2013, nominally as a vehicle for app development. Poida took it over and renamed it in March of 2022, less than a month after Putin ordered the full-scale invasion of Ukraine. One western official confirmed the group, which mentions meetings involving the security services in the leaked correspondence, is a front for Russian intelligence.
The leaked exchange of letters mentions paying for two specific customs categories of goods, types of electronics and machinery, in rupees. Russian filings show that trade in these categories has soared from negligible volumes in mid-2022.
Customs filings also reveal specific items that potentially match the project’s activities. Innovio Ventures, an Indian company, was listed in trade declarations as the supplier of at least $4.9mn of electronic equipment, including drones, to Russia as well as $600,000 of goods shipped to Kyrgyzstan. The transactions were listed in Russian filings as settled in rupees.
The shipments to Russia include $568,000 of electronic equipment for use in radio-electronic systems to a Russian company called Testkomplekt, which has been hit by US and EU sanctions for being at the heart of Moscow’s military procurement system.
An Indian businessman familiar with Russia’s trade with India said Moscow had also done scoping work to establish facilities in India.
“Part of this [rupee pile] was to be deployed in India for coming up with the necessary manufacturing of dual-use items,” the Indian businessman said. “It could be low-value electronics items like the ones found in washing machines or refrigerators.”
“You could either export these items, or take the electronics out and send them to Russia,” he added.
(Financial Times, September 4, 2024)