NEW DELHI — India and Russia have agreed to resolve delayed payments related to defense contracts, while also formalizing a plan for the local production of Russian equipment and spare parts.

The planned resolution comes as India and China are caught up in a territorial dispute near their borders, and as the West implements sanctions on Moscow amid Russia’s invasion of Ukraine.

As a result of the economic restrictions, India has been unable to make payments to Russia since April 2019. India has attempted to install an alternative rupee-ruble payment to cover the costs, but Russia declined the proposal. The amount due totals about $3 billion as of April 2023, a government source told Defense News on the condition of anonymity because the individual was not authorized to speak to the press.

Now, the two governments have achieved a breakthrough, according to sources with knowledge of the agreement, which was made April 28 during bilateral talks involving Indian Defence Minister Rajnath Singh and his Russian counterpart Sergei Shoigu.

Under the new plan, India’s Defence Ministry will make payments through Russia’s financial messaging system. The Financial Messaging System of the Bank of Russia, or SPFS, is an alternative to the Swift system, which supports international financial transfers; several governments have limited Russia’s ability to use Swift.

Indian banks designated by the government are to make pending payments for signed defense contracts between India and the Russian arms export agency Rosoboronexport. If the Russian ruble transactions are blocked, the trade settlement will instead involve Indian rupees.

Local production

Russia also agreed to support India’s defense industry through the economic initiative Make in India, according to a statement from the Indian Defence Ministry.

“The two Ministers discussed wide-ranging issues of bilateral defence cooperation, including military-to-military ties as well as industrial partnership,” the ministry said. “They also discussed the Russian defence industry’s participation in the ‘Make in India’ initiative and ways to provide further impetus to it.”

Russian Embassy spokesman Dimitry Solodov did not respond to multiple requests for comment.

However, sources — speaking to Defense News on the condition of anonymity because they were not authorized to speak to the press — said Russian original equipment manufacturers are to set up joint ventures with private defense enterprises in India to locally produce spare parts, systems and subassembly material, as well as to perform maintenance, repair, overhaul and upgrade work in order to keep Russian equipment operational for India’s military.

Under the plan, those Russian manufacturers “can retain up to 49% equity holding” in the private Indian businesses, a source noted.

“Under this initiative, Russian OEMs will also build weapons and military equipment in India with a minimum of 50%/60% indigenous content,” the source said.

The variation in percentage is due to differing requirements under the Make in India effort. The category “Buy and Make Indian” requires 50%, while “Buy Indian” requires 60% given the foreign designs involved.

Currently, India’s military inventory is made up of 60% of Russian-made systems, a government source said, adding that for the last three to four years, Russia has failed to supply almost 40% of the spare parts on order for India.

“I have no doubt that Indian companies, including a large number of our small-scale enterprises, can manufacture spares, assemblies and subassemblies,” Amit Cowshish, a former financial adviser at India’s MoD, told Defense News.

State-run defense entities that could seek joint ventures with Russian original equipment manufacturers include Armoured Vehicles Nigam Ltd.; Advanced Weapons and Equipment India Ltd.; Bharat Electronics Ltd.; Bharat Dynamics Ltd.; Bharat Heavy Electricals Ltd.; Hindustan Aeronautics Ltd.; India Optel Ltd.; and Munitions India Ltd.

Private defense firms include: Ananth Technologies; Bharat Forge; Indesys Equipments; MKU Ltd.; and PTC Industries.

Likewise, Russian manufacturers that could participate include: Uralvagonzavod; Tecmash; Bazalt; Tactical Missiles Corp.; NPO Mashinostroyenia; United Aircraft Corp.; Russian Helicopters; Oboronprom; Almaz-Antey; United Engine Corp.; United Shipbuilding Corp.; Zvezdochka Ship Repair Center; Admiralty Shipyards; Aerospace Equipment Corp.; and Urals Optical and Mechanical Plant.

Practical plans?

But Cowshish said he doubts this bilateral arrangement is feasible given the need for varying degrees of cooperation, which is unlikely to take place.

Alternatively, he explained, Indian companies could develop products with indigenous designs or in technical collaboration with countries that have both used Russian-origin equipment and have developed stronger technical capabilities than India.

Ruslan Pukhov, who leads the Moscow-based Centre for Analysis of Strategies and Technologies think tank, noted Russia has managed to continue limited supplies to India despite the lack of payments. But unless the latest payment plan works soon, Russian supplies to India may come to a halt, he told Defense News.

Furthermore, retired Indian Air Force squadron leader and independent Russian military affairs expert Viajinder Thakur said the Make in India deal may not work as expected.

“Russian OEMs likely don’t have the bandwidth to help India localize [the] manufacture of spares, as the Russian military-industrial complex, or MIC, is working on a war footing for its own requirements,” Thakur told Defense News. “But India may not need the help of Russian OEMs. Under the arrangement, Indian companies can obtain the specification and drawings from Russia to facilitate local manufacture. Indian MIC needs to similarly work on a war footing. There is no other solution.”

Thakur added there can be little doubt the flow of Russian spares to India will remain constrained as long as Moscow is at war.

“Also, Russia’s ability to supply spare parts as well as manufacturing capability is likely to be constrained by Western sanctions,” Thakur said. “Long term, India’s best option is to localize production of Russian equipment spares.”

The ministry selected state-run Bharat Dynamics to supply the fully indigenous Akash system, a short-range air defense weapon, through an 81.6 billion rupee (U.S. $996.2 million) contract.

Under this deal, the Army will receive two regiments comprising six firing units each and an unknown quantity of 30-kilometer-range (19-mile-range) surface-to-air missiles. The Akash was locally designed and developed by the government’s Defence Research and Development Organisation.

The contract provide the Akash weapon system for two of the Army’s air defense regiments. The deal includes live missiles and launchers with upgrades, ground support equipment, vehicles and infrastructure.

One regiment of the Akash weapon system is made up of six launchers, which are mounted with 16 missiles and two command posts, one tracking radar system, and support vehicles.

According to DRDO, the 5.6-meter-long Akash is capable of flying at Mach 2.5 and is guided by a fire-control ground surveillance radar with a tracking range of 60 kilometers.

Separately, the Defence Ministry awarded a 17 billion rupee contract to Indo-Russian joint venture company BrahMos Aerospace for an unspecified number of BrahMos next-generation maritime mobile coastal batteries of the long-range variant, known as NGMMCB (LR), as well as BrahMos land-attack cruise and anti-ship missiles.

These NGMMCB (LR) systems will be equipped with supersonic BrahMos cruise missiles that will bolster the maritime strike capability of the Indian Navy, according to the ministry.

One NGMMCB comprises four mobile launcher systems, which have three missile-firing tubes each; one mobile command post; and one mobile tracking radar system. The mobile command post manages air defense, command and control, and communications networks for the system.

The batteries ordered by India will feature the extended-range variants — more than 400 kilometers — of the BrahMos.

The ministry said the new deal with BrahMos Aerospace will boost domestic production and provide more than 90,000 workforce days over the course of four years.

Independent defense analyst Vijainder Thakur said the Ukraine war, which began more than a year ago when Russia invaded the country, has not affected Moscow’s ability to fulfill its contractual obligations with India.

“The fact that Russia delivered the second and third S-400 regiments to India on schedule is evidence,” he told Defense News.

However, Russia invoked a force majeure clause in response to delays in supplying the remaining two S-400 regiments to India as well as spares for Su-30MKI fighter jets, Thakur said. And if the war continues for a lengthy period, he added, Russia will likely increase the transfer of technology to unprecedented levels to facilitate local production and maintain close military ties with India.

Also last week, the ministry signed a 97.8 billion rupee contract with state-run businesses Goa Shipyard as well as Garden Reach Shipbuilders and Engineers for 11 next-generation offshore patrol vessels.

Of the 11 ships, seven will be indigenously designed, developed and manufactured by Goa, and four by Garden Reach. Delivery is scheduled to start in September 2026.

The ministry said these ships will enable the Navy to maintain its combat capability and meet various operational requirements such as anti-piracy, counter-infiltration, anti-poaching, anti-trafficking, noncombatant evacuation, and search and rescue operations, as well as the protection of offshore assets.

Last year, the ministry included these ships on its third arms embargo list, meaning overseas equipment manufacturers can no longer supply these specialized vessels.

The ministry said construction of these ships will generate 11 million workforce days over seven and a half years.

Additionally, state-run Cochin Shipyard won a deal worth about 98.1 billion rupees to supply six next-generation missile vessels to the Navy. Delivery is scheduled to begin in March 2027.

The stealthy vessels will include surface warfare and high-endurance capabilities. The ships will primarily provide an offensive capability at sea.

Currently, the service is using 30% of the communications capabilities provided by the GSAT 7A, a satellite designed for the Air Force.

A Defence Ministry statement issued March 29 said the government awarded the satellite contract to state-run NewSpace India Ltd., a commercial arm of the national space agency, the Indian Space Research Organisation.

The launch of the 5-ton geostationary satellite is to take place in three and a half years.

As prime contractor, NewSpace India is to source numerous parts, subassemblies and systems from domestic small- and medium-scale enterprises as well as startup companies to promote the country’s private space industry.

The satellite will considerably enhance the Army’s capabilities by providing mission-critical, beyond-line-of-sight communication for troops and materiel, the ministry said. The satellite will operate at both X band and Ku band frequencies, and is meant to improve communication connectivity to provide network-centric warfare capabilities.

The GSAT 7B will also help the Army enhance its surveillance of contested border areas with China and Pakistan.

The satellite is also expected to provide integrated communication for the Navy and Air Force. It will comprise two units, one of which will operate in space and the other on the ground.

The Indian military currently buys the majority of materiel from state-run defense companies on a single-vendor nomination basis, while the share of private defense contractors constitutes barely 15%.

The ministry on March 24 announced it signed a contract worth about 30 billion rupees with BEL for Himshakti integrated electronic warfare systems. The government’s Defence Research and Development Organisation, which designed and developed the Himshakti, said the technology will help the Army in mountainous terrain.

The system features several new-generation technologies such as ultraviolet very high-frequency directional finders and jammers.

The government ordered two Himshakti systems from BEL on a nominated single-vendor basis, despite private defense contractor Tata Power SED having previously won a $115.37 million deal for the supply of two similar systems in a multivendor competition.

The ministry maintains its Project Himshakti will bolster the local economy and provide employment opportunities.

And on March 23, two separate contracts were awarded to BEL for the supply of locally made Arudhra ground-based, medium-power radars and DR-118 radar warning receivers to enhance the electronic warfare capabilities of Su-30 MKI fighter jets in service with the Air Force. The DR-118 deal is worth about 9.5 billion rupees.

The ministry noted that the majority of subassemblies and parts will be sourced from domestic manufacturers.

“The Su-30MKI fighters were earlier integrated with R-118 [radar warning receivers], which employed analog technology, which has inherent limitations; whereas DR-118 has adopted digital technology in processing the inputs,” said Daljit Singh, an independent defense analyst and retired officer in the Air Force, “and it would be a significant improvement over the previous model, and it is indeed a positive development toward self-reliance.”

The eight Arudhra systems are the first indigenous, multifunction, rotating active phased array radars with digital beam-forming technology. They are to replace legacy TRS-2215 and PSM-33 radars supplied by the French company Thales. The deal is worth about 28 billion rupees.

BEL said the Arudhra is locally developed and manufactures the technology based on the a DRDO design. The system is expected to enhance the Air Force’s surveillance capability.

Defence Minister Rajnath Sigh tweeted on Wednesday that the Cabinet Committee on Security, chaired by Prime Minister Narendra Modi, endorsed the signing of a contract for the vessels. The Ministry of Defence said it will ink the contract later this month, with deliveries to start in 2026.

The ships are to help train officer cadets at sea following basic training for the Indian Navy. India could also use the ships for humanitarian assistance and disaster relief missions.

The MoD said the ships would also provide training to cadets from friendly countries, with the aim of strengthening diplomatic relations.

The planned order is expected to bolster the Indian Navy’s training capability. The service currently operates three cadet training ships.

Larsen & Toubro won a tender for the naval program last year under the ministry’s Buy Indian-IDDM (Indigenously Designed, Developed and Manufactured) procurement category, beating out five state-run shipyards: Mazagon Dock Shipbuilders Ltd.; Garden Reach Shipbuilders and Engineers; Goa Shipyard Ltd.; Hindustan Shipyard Ltd.; and Cochin Shipyard Ltd.

The Larsen & Toubro shipyard in the town of Kattupalli in Chennai, southern India, is to construct the three ships.

The MoD noted that with the majority of equipment and systems sourced from indigenous manufacturers, these vessels will serve as an example of India’s effort to become self-reliant.

The company said each training ship will be 122 meters in length and 18 meters in breadth. They are to have a displacement of 4,700 tons, the contractor added, while being able to reach a speed of 20 knots, feature an endurance of 60 days and 7,500 miles at 15 knots.

Each ship should house 20 officers, 150 sailors and 200 cadets. Additionally, they will have an bridge and a chart house dedicated for cadet training, plus three classrooms with a seating capacity of 70 in each.

The ships will also feature 75mm and 12.7mm guns, close-in-weapons with fire control systems, combat management and data link systems, and advanced composite communication technology.

Defence Minister Rajnath Sigh tweeted on Wednesday that the Cabinet Committee on Security, chaired by Prime Minister Narendra Modi, approved the procurement plan.

The government will sign a contract for the HTT-40 aircraft later this month, the Ministry of Defence told Defense News.

The new aircraft will complement the existing basic training fleet of Swiss-made PC-12 Mark II basic trainers with the Indian Air Force. The service currently operates 260 trainer aircraft — a combination of basic and advanced trainers — against the requirement for 388.

The MoD said the aircraft will help with a shortage of basic trainer aircraft of the Air Force as it trains newly inducted pilots.

Hindustan Aeronautics Ltd. will provide 70 HTT-40 aircraft, associated equipment and training aids, including simulators, over a period of six years, the ministry said. The company did not respond to a request for comment.

The HTT-40 program is supported by a supply chain of more than 100 domestic, private, small-scale enterprises that will provide 1,500 direct and 3,000 indirect employment opportunities through local suppliers, according to the ministry.

The aircraft currently includes up of 56% of Indian-made systems and components, and the ministry expects that to increase to 60%. The acquisition of the HTT-40 provides a fillip to the Indian aerospace defense ecosystem and boosts India’s efforts to become self-reliant, the ministry added.

India will use its HTT-40 aircraft for basic flight training, aerobatics, instrument flying and close formation flights, with secondary roles including navigation and night flying, HAL said.

This fully aerobatic tandem-seat turbo trainer has an air-conditioned cockpit, modern avionics and hot refueling capabilities. It also features zero-zero ejection seats, meaning they function as zero altitude and zero airspeed.

Costing about $7 million per unit, HAL also plans to offer the HTT-40 to foreign customers, a company executive told Defense News on the condition of anonymity, as the individual was not authorized to speak to the media.

The executive also said HAL spent $85 million on the design and development of the HTT-40, which included the creation of two porotypes and at least 550 test flights.

In a statement, the Indian Navy described the development as a historical milestone that “demonstrates India’s capability to design, develop, construct and operate indigenous aircraft carriers with indigenous fighter aircraft.”

The first landing of a Russian-made MiG-29K fighter jet on the carrier also took place Monday using its short-takeoff-but-arrested-recovery mode.

The service said Indian naval pilots performed the two landings.

The Navy plans to use its 12 MiG-29K fighters on the INS Vikrant, and bolster its fleet by procuring 26 F/A-18E or Rafale M fighters.

The Aeronautical Development Agency, under the purview of the Defence Research and Development Organisation, developed three single-engine naval LCA prototypes. The state-run firm Hindustan Aeronautics Ltd. produced the aircraft. The Navy describes naval LCA prototypes as technology demonstrators.

The successful landing and takeoff tests from aircraft carriers will help with the development and manufacture of twin-engine, deck-based fighter jets, according to the Aeronautical Development Agency.

Monday’s compatibility test with the LCA technology demonstrator is a significant achievement in India’s attempts to produce indigenous twin-engine naval fighters, said former Indian Navy Vice Adm. Shekhar Sinha.

Sinha noted that as an interim arrangement, the Navy could buy a limited number of foreign-made fighters for its aircraft carriers, but that the service is also funding and supporting domestic efforts to develop a potent naval fighter.

The Aeronautical Development Agency previously said it expects the government to approve $2 billion in funding in mid-2023 for the indigenous development of a few twin-engine, deck-based fighter prototypes. The first flight of that prototype with a canard and delta wing configuration is planned for 2026, and is expected to enter service by 2032.

The Navy currently operates two aircraft carriers — the INS Vikrant and the Russian-built INS Vikramaditya — as well as 42 Russian-made MiG-29K jets.

India’s annual budget for that financial year, released Feb. 1, envisages a total outlay of 45.03 trillion rupees. The government has allocated 5.93 trillion rupees for defense, which is about 13% of the total budget. This includes 1.38 trillion rupees for defense-related pensions.

The total defense budget is an increase over the previous financial year by 683.71 billion rupees, or about 13%.

“This increase is a reflection of the Government’s commitment towards sustainable augmentation in the area of modernisation & infrastructure development of the Defence Services,” the Defense Ministry said in a statement.

During this financial year — which runs April 1, 2023, to March 31, 2024 — the money set aside for procuring new weapons is 1.62 trillion rupees, while funds for stores, spares, repairs and the like is 2.70 trillion rupees.

The allocation of funds for non-salary, operational purposes (such as repairs, food supplies, clothing, transportation costs, etc.) gets a boost of 275.7 billion rupees, to about 900 billion rupees in this financial year, compared to 624.31 billion rupees last financial year.

“This will cater to sustenance of Weapon Systems, Platforms including Ships/Aircrafts & their logistics; boost fleet serviceability; emergency procurement of critical ammunition and spares; procuring/hiring of niche capabilities to mitigate capability gaps wherever required; progress stocking of military reserves, strengthening forward defences, amongst others,” the Defence Ministry said.

The MoD added that during the midterm review, the government added 260 billion rupees for making outstanding payments toward previously committed liabilities.

Amit Cowshish, a former financial adviser for the ministry, told Defense News that, amid efforts to boost the economy, the government has done its best to raise the defense budget. Now it’s up to the armed forces to make the best use of their respective funds, he said.

The capital expenditure or outlay is meant for the procurement of new weapons and platforms as well as to pay off outstanding committed liabilities for past defense contracts.

The capital outlay for the Indian Army has increased to 372.41 billion rupees for the 2023-2024 time frame, compared to 320.15 billion rupees in the last financial year. The service plans to buy drones, loitering munitions, small arms and light tanks, as well as upgrade existing tanks and armored personnel carriers.

The capital outlay for the Navy increased to 528.04 billion rupees, from 475.90 billion rupees. The service wants to spend this money on ship-borne drones, loitering munitions, missiles, satellites and new small ships.

The capital outlay for the Air Force saw only a marginal increase to 571.37 billion rupees, from 555.86 billion rupees. The service plans to buy new air defense systems, missiles, UAVs, anti-drone systems, satellites and combat helicopters.

The capital outlay for defense-related research and development is 232.64 billion rupees, which will help with the indigenous development of new military technologies.

The budget for the Border Roads Organisation, which falls under the purview of the MoD, will particularly help the force operating along the border with China. The funding increased by about 43% to 50 billion rupees, from 35 billion rupees.

As part of the agreement made on Monday between Naval Materials Research Laboratory and Naval Group, the latter will certify the AIP design. The AIP system, which the lab has already developed, will improve the endurance of India’s diesel-electric submarines, the India Defence Ministry said in a statement.

AIP technology is known to enhance the endurance of conventional, or non-nuclear, submarines from about 24 hours to 14-21 days. The Indian Navy has decided to equip all six Kalvari-class submarines with the lab-designed AIP system when the boats undergo their first major refits, with the first planned for two years from now.

The lab, which is part of the government’s Defence Research and Development Organisation, is currently conducting research on strategic materials for the Navy. According to DRDO, efforts involve developing an optimized design for a phosphoric acid fuel cell system, hydrogen generators, power conditioners, control systems, heat exchangers, a demineralization water system, and auxiliaries for the AIP system.

India’s largest private defense contractor, Larsen & Toubro, will serve as prime contractor for the AIP systems, while another private company, Thermax, will supply fuel cells. The Navy has not previously ordered AIP systems from domestic prime contractors.

DRDO declined to comment on the cost of developing the technology.

To date, the Indian government has only tested AIP prototypes, which have successfully met design requirements.

The prototype designs are advanced because the system onboard the submarine uses the chemical sodium borohydride, which mitigates risk since hydrogen is not carried or stored, which is the case with other AIP systems, according to retired Indian Navy Commodore Mukesh Bhargava. The storage of hydrogen — a flammable element — onboard a submarine carries with it the risk of an explosion.

Also on Monday, the Indian Navy commissioned its fifth Kalvari-class submarine INS Vagir. The service said this submarine type features advanced stealth technology and is equipped with long-range guided torpedoes and anti-ship missiles.

The state-run Mazagon Dock Shipbuilders Ltd. in India builds the subs in collaboration with Naval Group.

The approved projects are for Helina anti-tank guided missiles; very short-range air defense systems for the Army; and the Brahmos missile launcher and a fire control system for Navy ships.

A meeting of the Defence Acquisition Council on Jan. 10, chaired by Defence Minister Rajnath Singh, granted a so-called acceptance of necessity for three capital acquisition proposals, the Ministry of Defence said. The announcement did not provide quantities nor costs for each program, and the ministry did not respond to a request for comment.

The purchase of the weapons systems will fall under the Buy Indian IDDM procurement category. According to the ministry, this category requires the procurement of arms from an Indian vendor that were indigenously designed, developed and manufactured while containing at least 50% locally made technology.

An acceptance of necessity in India is essentially fiscal approval that paves the way for tenders, which lead to the purchase of new arms and related equipment.

Plans for Halina

The Halina missiles, launchers and associated support equipment are to be integrated into advanced light helicopters. The Helina is a third-generation fire-and-forget system with a 7-kilometer (4-mile) range. The state-run Defence Research and Development Organisation develops the system, which can engage targets via direct- or top-attack mode. The launcher can operate in all weather conditions during the day and night, while the missiles are used to defeat battle tanks with conventional and explosive reactive armor.

The state-run firm Bharat Dynamics Ltd. produces the land-attack version of the missile, called Nag, through technology transfer from DRDO.

DRDO said Bharat Dynamics will serve as the production agency for Helina anti-tank guided missiles. Work on the weapons began about a decade ago, and they will likely be delivered in 2026.

Rajiv Chib, a partner at Insighteon Consulting, said each Helina missile is expected to cost 10 million rupees, with an initial requirement for about 500 missiles. “However, DRDO needs to ensure that the missile comes out with a warhead-penetration capability of 1,100-1,300 millimeters of armor,” Chib added.

VSHORAD purchase

India also plans to buy an unspecified number of DRDO-developed very short-range air defense weapons featuring infrared-homing missile systems that can shoot down aerial targets at a range of up to 7 kilometers.

“In view of the recent developments along the Northern borders there is a need to focus on effective air defence weapon systems which are man-portable and can be deployed quickly in rugged terrain and maritime domain,” the ministry said, likely referring to clashes with Chinese forces.

A member of the Society of Indian Defence Manufacturers, a local trade association, said it will take at least eight years for the Army to induct the VSHORAD system because the technology is not yet fully developed nor has it been proved operationally fit. The individual requested anonymity from Defense News in order to speak candidly.

One DRDO scientist said the organization selected two private companies — Adani Defence Systems and Technologies Ltd. and ICOMM Tele Ltd. — as development production partners for the VSHORAD program. The scientist spoke on the condition of anonymity, as he was not authorize to speak to the press.

Naval orders

The new budget approval will also see the acquisition of locally built launcher systems and fire control systems for the ship-mounted Brahmos cruise missiles meant to equip Shivalik-class frigates and next-generation missile vessels.

The Society of Indian Defence Manufacturers member noted that state-run Mazagon Dock Shipbuilders Ltd. builds Shivalik-class frigates, and state-run Cochin Shipyard Ltd. is the production agency for next-generation missile vessels.

Minister of State for Defence Ajay Bhatt last month informed Parliament that the government has granted acceptance of necessity to 163 proposals worth 2.46 trillion rupees that would promote domestic manufacturing.

Over the last four years, Bhatt added, the government has reduced its foreign defense procurement spending from 46% to 36%.