Will India manage to make a major trade mark in Russia?
Indian exports to Russia declined 14% to $2.2 billion in April to December 2022, primarily due to logistical problems created by payment disruptions. The trade imbalance between the two countries would further delay efforts to switch contracts to local currencies.
Indian Prime Minister Narendra Modi and Russian President Vladimir Putin share cordial relations and converse regularly, most recently a week ago, all the while trying to infuse a momentum into their bilateral relations, particularly the trade partnership.
Their commitment to the special and privileged strategic partnership between the two nations saw them “chalk out a roadmap for future initiatives,” Mr Modi said which, India’s foreign ministry elaborated, includes expanding military and technical cooperation, including modern weaponry manufacturing, discussed when Indian Foreign Minister Subrahmanyam Jaishankar met his Russian counterpart Sergei Lavrov in Moscow last month.
While both New Delhi and Moscow appear eager to provide economic heft to their partnership beyond these traditional areas, the path to enhanced commerce is not proceeding as smoothly as both establishments would like. This is despite the spurt in the bilateral volume of trade since Russia’s conflict with Ukraine began two years ago, leaving Russia facing massive sanctions and cut off from its main energy market in Europe.
Russia became India's fourth largest source of imports in 2022, driven by the energy trade boom, as a near insatiable India absorbed energy exports redirected from Europe, going on to import 17% of its crude oil and 9% of its coal from Russia, at hefty discounts. India’s fertilizer imports also rose to $2.1 billion in 2022, from $376 million in 2021, according to India’s Directorate General of Foreign Trade. In fact, Russian exports to India grew almost fivefold, to $32.8 billion in April-December 2022, from $6.6 billion the previous year. The problem lies in the fact that Russian imports far outweigh Indian exports to Russia.
Beyond energy security, including nuclear energy sufficiency, food security has emerged as another area of enhanced cooperation, as Russian fertilisers, agricultural appliances and Indian demand for sunflower and soybean oil and legumes have added to India’s import bill.
However, for Indians wishing to trade with Russia, the situation is more complicated and, analysts said, likely to remain at a government to government level for more time. India's trade deficit with Russia has rapidly burgeoned, as its exports lag far behind imports. Indian exports to Russia declined 14% to $2.2 billion in April to December 2022. This was primarily because of logistical problems, created by payment disruptions as, post-sanctions, Russia is now mostly cut off from international payment systems, making trade settlements longer and more convoluted.
Analysts and officials say this trade imbalance would further delay efforts to switch contracts to local currencies, despite both governments being willing. To facilitate energy imports post-sanctions, the Reserve Bank of India set up, in July 2022, a new payment system to facilitate trade in Rupees. Media reports said, similarly, several Russian banks opened "Vostro" accounts with Indian banks.
The continuing war in Ukraine, sanctions on Russia and geopolitical tensions remain major obstacles to enhanced Indian exports to Russia, along with the absence of enthusiasm in India’s private sector entities. The threat of secondary sanctions and penalties imposed on third country actors doing business with sanctioned organizations obviously discourages Indian private companies from actively pursuing trade with Russian entities.
While India benefits from access to cheaper Russian commodities, analysts point out that there is a marked difference between government expressions of interest and Indian private entities doing business on the ground in Russia. Additionally, transport, safety and the time taken for Indian exports to reach Russia, with hostilities having erupted across the Middle East, further discourage private sector players from seriously investing in Russia. The International North-South Transport Corridor (INSTC), which passes through Azerbaijan and Iran and would drastically cut transport time, thereby allowing enhanced volumes of freight, is still far from ready.
Refusing to be discouraged and to take their trade to the next level, both countries are working on options to boost bilateral trade, including deciding to facilitate movement of freight by using a new water route, the Northern Sea Shipping route. This route is among the safest routes for goods transport and the shortest route connecting East Asia and Europe.
India is now among the top 10 suppliers of pharmaceutical products to the Russian market. Restrictions on supplies of such products from the European Union and the U.S. have given Indian companies new opportunities. Russian imports of pharmaceutical products grew by 16% $16 billion in 2022, from $14 billion in 2021, according to Russian customs data.
The Russian government and businesses require machinery, equipment and spare parts, including for the automobile and civil aviation sectors and IT and electronics products, to substitute for a lack of western imports. Opportunities to further diversify into a wider range of products have not been very successful yet. The Indian services sector and Indian lifestyle products and services, along with gems and jewellery, handlooms and clothing and footwear manufacture remain areas with potential, but whether the Russian market is ready to look away from the West towards India remains unclear. Despite the multiple geostrategic dangers since 2022, both countries have managed to maintain and even improve their trade relations, crossing a mark of $18 billion in just six months in 2022.
Geopolitical and strategic considerations do impact Indian trade with Russia, which is seen as drawing closer to China after western sanctions. China remains the largest market for Russian oil and is a major market for Russian defence hardware, naturally increasing Indian concerns. While enhanced trade with and increased economic involvement in India would certainly help Russia remain not solely dependent on China, all the alignments for enhanced trade have not yet taken off to attain cosmic volumes.
By Nilova Roy Chaudhury
