India-Russia Relations: Increased Sanctions Risks for Investors?
New Delhi and Moscow have had a close historic economic and political relationship dating back to the late 1940s. During the Cold War, the Soviet Union provided diplomatic support to India. Most notably Soviet support around India’s various conflicts with Pakistan was welcomed and appreciated, and in subsequent decades, the two countries have cooperated in key sectors including energy and defence. These significant bilateral trade links totalled USD 66 billion in 2023-24.
This long-term relationship has come under increasing scrutiny from the West – also an Indian ally and trading partner – following Russia’s 2022 invasion of Ukraine. Notably, US and European bodies have sanctioned Indian companies and individuals due to exports of restricted technologies to Russia supporting its military-industrial complex.
These moves and their broader context present increased sanctions risks for investors looking at India. Our South Asia team provides its analysis below.
A Close Relationship
On a visit to Russia in December 2023, Subrahmanyam Jaishankar, India’s minister of external affairs, spoke of the deep ongoing relationship between the two countries. Notably, the minister described Russia as a “valued” and “time-tested” partner of India.
It was a nod to the period after India’s independence, when Jawaharlal Nehru – India’s first prime minister – visited the Soviet Union, in the mid-1950s. Significant diplomatic, political, economic and military cooperation between the two states followed that visit and continues to the present.
Defence has traditionally been a core focus of the India-Russia relationship, and although arms imports from Russia to India have declined in recent years in favour of Western suppliers such as France and the US, there continues to be strong collaboration.
According to some estimates, Russia has supplied more than half of India’s current weapons systems, and media articles state that India and Russia are jointly manufacturing military hardware in India including missiles and rifles.
Russia is India’s fourth largest trading partner, behind the United Arab Emirates, the US and China. The vast majority of the USD 66 billion of bilateral trade in 2023-24 comprised oil imports from Russia. ICRA, an Indian credit rating agency, states that India has saved more than USD 10 billion by acquiring cheap Russian oil since the invasion. Various other key commodities traded between the two nations include fertilizers and precious stones and metals from Russia, as well as pharmaceuticals, mechanical appliances, and electrical machinery from India.
Russia’s war in Ukraine has not dented the relationship. India did not condemn the invasion and has maintained a neutral stance, calling for peace while benefitting from inexpensive crude oil imports from Russia.
India’s Prime Minister Narendra Modi has visited Russia twice in recent months and both times has publicly shown support for the country. Modi described Russia as India’s “all-weather friend” during a visit to Moscow in July 2023; and there was rosy rhetoric between Modi and Russian President Vladimir Putin when they held bilateral talks at the 16th annual BRICS summit in Kazan in October 2024.
In parallel, India continues to foster its relationship with one of Russia’s key adversaries, the US. The US-India relationship has grown increasingly strong in recent decades, with both countries viewing their deepening ties as a bulwark against the rise of China. Notable areas of cooperation are security and defence, including supplying defence equipment and conducting joint military exercises. For example, in September 2024, the US and Indian armies completed joint counterterrorism drills in Rajasthan. Many now believe that India has no choice but to draw closer to the US – as well as other allies in the West such as the EU – who will be more effective at mitigating India’s concerns around China.
Signs that India’s Western friends are becoming increasingly concerned about its long-running relationship with Moscow are becoming evident. Fallout in the form of sanctions against Indian companies and individuals linked to the Russian military-industrial complex should be on investors’ radars.
Pressure from the West Including Sanctions
The US is mounting pressure on India over its ties to Russia. In July 2024, a US State Department spokesperson publicly stated that the US raised concerns with India about its close relationship with Moscow. Later that same month, the US Treasury issued a stark warning to Indian banks that they could be banned from the US financial system if they engage in certain types of transactions with Russia.
A key area of concern is Indian companies exporting dual-use products – goods that can be used for both civilian and military applications – to Russia. Some of these goods, which include circuits, machine tools and microchips, are being funnelled into Russia’s military-industrial complex and fuelling the conflict in Ukraine. In October 2024, quoting US and European officials, Bloomberg reported that India has grown to become the second largest supplier of restricted critical technologies to Russia, behind China. The same article noted that Indian exports of dual-use goods to Russia reached USD 95 million in July 2024.
This has not gone unnoticed or unpunished – Si2 Microsystems, an electronics equipment manufacturer headquartered in the Indian city of Bengaluru, was sanctioned in November 2023 and February 2024 by the US and EU respectively. The company was accused of selling equipment that supported the Russian military. More recently, in October 2024, the US sanctioned 19 Indian companies, and two Indian citizens, accused of selling dual-use goods to Russia, part of broader sanctions targeting hundreds of entities and individuals across various jurisdictions including China, the United Arab Emirates and Turkey.
As Russia’s war in Ukraine continues, the potential for further sanctions on Indian companies and people is very real. It is crucial for investors to conduct robust due diligence on acquisition targets and counterparties in India. This can ensure that any potential sanctions risks and issues around problematic links to Russia can be flagged and mitigated at an early stage in the investment process.
Our South Asia and Former Soviet Union teams are experts at understanding these risks and regularly support clients with integrity and sanctions due diligence, as well as stakeholder mapping, human rights advisory and political risk analysis.