Warning signals for India as credit squeeze hits Russian defence industry

Moscow: Russian arms manufacturers are seeking an urgent bailout of their own from the Kremlin in order to meet contract deadlines. An Interfax report cites deputy prime minister Sergei Ivanov as saying that Russian defence producers have not been left unaffected by the global credit crunch.

Apart from other customers of Russian weaponry, the announcement may also be a loud hint for New Delhi, which still sources most of its defence equipment from this country. Delhi is due to host a first time visit from Russian president Dmitry Medvedev next month and, amongst other important matters, also expects to resolve longstanding issues related to pricing and delivery of critical weapons systems and platforms.

The INS Vikramaditya/Adm Gorshkov programme is a familiar issue in this regard.

Russia is the world's second-largest weapons exporter after the United States. The crisis, alluded to by Ivanov, would be particularly delicate for Kremlin as the country has aggressively pursued weaponry sales around the world, not just as a means of earning foreign exchange but also to extend its sphere of political influence.

Now, Ivanov says the industry is facing a cash crunch that is threatening the ability of state-owned manufacturers to deliver contracts. 'The global financial crisis is affecting some defence producers quite drastically,' said Ivanov, who is also in-charge of defence spending.

'A whole series of defence producers are experiencing a sharp cash flow shortage toward ensuring the release of finished products and transfer to their customers,' he said.

Sale of weapon systems not only helps a particularly high-tech sector in a country, but also boosts foreign exchange earnings given the high value of weapon systems. It is also understood  that they are an important diplomatic tool.

Ivanov has now advised the government to extend low- interest, emergency loans to the sector through state banks. He was quoted as saying that such a measure would 'ensure cash flow, including for paying wages to staff.'

Ivanov's plea is also being made in the backdrop of the Kremlin announcing a 25 per cent boost in defence spending for 2009. This is intended to re-equip the country's ageing military infrastructure.