Whether the U.S. sanctions India or not under the 2017 law will crucially depend on a single question: Between Russia and China, who is the bigger threat?

by Richard M Rossow and Kriti Upadhyaya

The U.S.-India 2+2 Ministerial held in New Delhi in late October 2020 put a solid endcap on another strong four-year run in defence relations between the two countries. However, a threat to the emerging relationship looms large — potential sanctions against India for procuring Russian military equipment under the Countering America’s Adversaries through Sanctions Act (CAATSA). It is not clear whether the existing waiver authority is wide enough for India, much less whether sufficient political interest exists to use such a waiver. Thus, CAATSA relief will likely hinge on whether India’s increasing contribution to Asian security overrides India’s continued reliance on Russian military equipment.

U.S.-India relations have come a long way since the Cold War. There are still places India falls short of some U.S. security analysts’ expectations. Some examples include playing a more active role in supporting stability in the South China Sea; maintaining distance from Iran; and supporting U.S. counterterrorism efforts against the Islamic State. Yet, India faces significant threats from China across a range of domains and has stepped up in important ways. As a result, India is emerging as a key U.S. strategic partner. The two nations have made significant strides in defence cooperation through the signing of four foundational agreements, expanded joint military exercises, personnel exchanges, and a common strategic outlook toward containing the Chinese threat. U.S.-India defence trade is today worth over $20 billion. This expanding level of cooperation will be seriously threatened if CAATSA sanctions are enforced when India takes possession of Russian-made S-400 Triumf missile defence systems, likely toward the end of this year or in 2022. The sanctions will come into place automatically unless the CAATSA waiver authority is utilized 30 days before sanctions are to take effect. Additionally, India is also procuring other defence items from Russia that could trigger a review.

CAATSA was signed into law in 2017, imposing new sanctions on Iran, Russia, and North Korea. The Russian sanctions were put in place given Russia’s aggression toward Ukraine and its meddling in the 2016 U.S. elections. The sanctions notably also include secondary sanctions on entities conducting significant transactions with the Russian government. In 2018, the United States passed a modified waiver authority through an amendment to Section 231 of CAATSA, presumably with India in mind. Despite this widened waiver authority the possibility of sanctioning India remains on the table — and the pathway to an exemption is uncertain.

Below we look at the relevant sections and outline the key issues for consideration related to India’s case:

Authors’ compilation and analysis; data source: Section 231 of CAATSA

As seen from the table above, India does not necessarily meet the modified waiver authority criteria. While India is diversifying its defence purchases away from Russia, some level of path dependency remains.

The CAATSA sanctions will reinforce longstanding concerns in India that the United States will not prove to be a reliable partner; the damage will be more severe than the sanctions themselves. This will push India closer to Russia as the country’s “all-weather friend.” The sanctions would harm India’s military capabilities and possibly put a pause to the range of India’s joint efforts with the United States within the Indo-Pacific, as outlined above. The negative attitudes produced by CAATSA defence sanctions would likely affect many other aspects of our cooperation as well. CAATSA contains 12 types of sanctions, at least five of which must be imposed. Some of these sanctions have far reaching consequences that can thwart the overall commercial relationship and adversely affect both U.S. and Indian companies, such as curbing export-import bank assistance for exports, blocking exports to the sanctioned entity, blocking loans from U.S. and international financial institutions, procurement sanctions, bans on investment in equity and debt of the sanctioned party, and sanctions blocking foreign exchange, banking, and property transactions.

This moment is particularly crucial due to increasing tensions between India and China. Sanctions against a friendly nation when it is attempting to uphold stability on China’s western flank is poorly timed, at a minimum. But Russia presents a different kind of threat that cannot be easily dismissed. The Biden administration will need to determine if India’s emerging actions in support of Asian security is more important than its narrow armaments partnership with Russia.