Why India Does Not Use Sanctions

India’s attitudes against isolating Russia arise from its strategic interests with Moscow and a long history as a recipient of sanctions, says Mathew Chemplayil.

India does not have its own autonomous (or unilateral) sanctions programme, despite being the world’s second most populous nation, fifth largest economy, and an exporter of nearly USD 500 billion in goods and services from 2020 to 2021.

Nearly every other large country has an autonomous sanctions programme – including China, which started issuing sanctions in 2019 – and almost all of India’s immediate neighbors, including Bangladesh.

India’s reluctance toward using sanctions as a tool of diplomacy traces back to the nation’s history as a target of sanctions. Though New Delhi complies with UN sanctions, it has opposed unilateral sanctions as a form of economic protectionism.

Security considerations also impact New Delhi’s willingness to sanction others, as is the case with India’s posture vis-a-vis Russia’s invasion of Ukraine.

India as a sanctions target

India faced significant international trade restrictions after the country conducted nuclear tests in 1974 and 1998.

In the 1970s, sanctions were used to target India’s ability to acquire nuclear materials, while in the 1990s, the US and Japan used sanctions to block India from receiving international aid and lines of credit.

The sanctions limited India’s capacity to open up and liberalise its economy; yet the sanctions did not deter it from nuclear weapons acquisition and testing.

As such, many Indian officials do not view sanctions as an effective tool for changing state policy, which is often the the objective of sanctions.

They consider the 20th century sanctions to have been overly punitive yet ineffective at achieving their main goal of blocking India from acquiring nuclear weapons. This has contributed to the perceived uselessness of unilateral sanctions by New Delhi today.

While the Indian government declines to implement its own autonomous sanctions lists, foreign sanctions have historically impacted Indian business.

In recent years, the US Treasury Department designated Indian nationals and companies for trading with sanctioned Iranian entities.

In May 2019, US sanctions forced India to cease buying oil from Iran. In June 2022, the US Treasury announced sanctions against Ruknooddin Bhore, an Indian national and manager of multiple companies that facilitated the resale of Iranian oil.

Approximately 50% of all OFAC sanctions against Indian designees were secondary sanctions applied for facilitating transactions with other sanctioned entities, such as those imposed over Iranian oil shipments.

The practice of foreign sanctions being enforced against Indian businesses will be increasingly true as foreign governments step up enforcement of new Russia sanctions.

India’s use of sanctions

India has in the past levied its sanctions and trade restrictions against others. It sanctioned South Africa’s apartheid regime, and blocked trade with Fiji from 1989 to 1999 over a deterioration of bilateral ties and the discrimination of Indians there.

More recently, India revoked Pakistan’s Most Favored Nation (MFN) status in 2019, after a terrorist attack in Kashmir, and banned over 100 Chinese-developed apps in 2021, including TikTok and WeChat, following border clashes.

While India does not have sanctions that primarily target external actors, it does maintain multiple lists related to internal security and law enforcement.

The list most closely resembling  sanctions is the List of Foreign and Domestic Organisations, Individuals and Entities Suspected of Terrorism or Radicalisation, managed by the Ministry of Home Affairs. The list is not extensive and is not global in nature.

Other watchlists from the National Investigation Agency and Central Bureau of Investigation also pertain to law enforcement, while the Ministry of Corporate Affairs’ list concerns commercial wrongdoing.

Strategic ties to Russia

New Delhi has avoided imposing sanctions against Russia, in spite of pressure from the G7 nations. The Indian government also avoids openly rebuking Moscow and continues to engage with Russia on strategic items.

Long-standing strategic relations contribute to New Delhi’s position vis-a-vis the G7 and Russia, with the latter being a major arms supplier to India. Important, though controversial, purchases from Russia include the recent acquisition of an S-400 missile defence system.

India says that its refusal to sanction Russia stems from concern for Russian citizens. Its representative to the United Nations Security Council (UNSC) voiced concerns over sanctions more than two weeks before Russia’s invasion of Ukraine in February.

Meanwhile, India’s government has encouraged domestic businesses to capitalise on discounted Russian oil purchases. For example, the government has denounced criticism of oil purchases from Russia and the Indian Register of Shipping provides certifications to Russian state-owned tankers to ensure the supply of Russian oil to India.

Indian and Russian officials have for months been trying to finalise a rupee-ruble payment mechanism that could be used to strengthen trade between the two countries, while also reducing the risk of US sanctions exposure. India has been planning to use the mechanism to buy Russian oil at a discount to global prices.

On Monday (11 July), the Reserve Bank of India (RBI) announced that domestic importers and exporters would be allowed to settle international trade transactions using the rupee.

“All exports and imports under this arrangement may be denominated and invoiced in rupee, the exchange rate between the currencies of the two trading partner countries may be market-determined, and the settlement of trade transactions under this arrangement shall take place in the rupee,” the RBI circular said.

This is the first time India has allowed countries (with the exception of Nepal and Bhutan) to settle international trades using the rupee (rather than the US dollar).

The US and Australia have previously expressed concerns about India’s plans to set up a payment mechanism to facilitate trade with Russia, saying it would undermine the sanctions already imposed.

Western authorities are unlikely to react well to the new mechanism.

Mathew Chemplayil is a data journalism associate at Castellum.AI. The research for this article included data from Castellum.AI’s Free Sanctions Search as well as data extracted from government websites.

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