India-Russia Trade Relations: Current Status, Significance, and Challenges

Context: This article is based on an Editorial “India Russia trade doubled to nearly $50 billion in Jan-Sept: Russian Ambassador” which was published in the Live Mint. The bilateral trade between India and Russia has doubled to almost $50 billion during January-September 2023. 

Russia-India Bilateral Trade: Current Status

• Phenomenal Growth in Bilateral Trade: Trade has increased by around 2.1 times in January- September this year, up to almost 50 billion USD owing to strong demand for hydrocarbons in India. 
• Exceeding Expectations: India and Russia have already achieved the bilateral trade target of $30 billion before the target year of 2025.
• Resilient Engineering Exports: According to Engineering Exports Promotion Council (EEPC) India, amid declining demand for engineering goods from major markets such as the US and China, shipments to Russia continued their uptrend and more than doubled to around US$ 123 million in July 2023 from around US$ 55 million in July 2022, a rise of about 122%. 

Brief on India-Russia Trade Relations

• Time-Tested Bilateral Ties: Russia and India have been longstanding and time-tested partners. The Indo–Soviet Treaty of Peace, Friendship, and Cooperation was signed between India and the Soviet Union in 1971 which specified mutual strategic cooperation. 
• Enhanced Cooperation: Since the signing of the “Declaration on the India-Russia Strategic Partnership” in 2000, the ties have gained a qualitatively new character with enhanced levels of cooperation in almost all areas of the bilateral relationship. 
• India-Russia Summit: During the Summit held in December 2021, 28 MoUs and agreements were signed. 

Know more about India-Russia Bilateral Relations here.

India-Russia Trade Relations: Significance

• Increasing Bilateral Trade:  India and Russia are discussing a free trade agreement (FTA) involving the Eurasian Economic Union (EEU/EAEU), against the backdrop of bilateral economic ties seeing a sharp expansion since the start of the Ukraine conflict.
  • Member countries of EAEU:  Russia, Armenia, Belarus, Kazakhstan, and Kyrgyzstan.
• Diversifying Trade: India has diversified its export basket to Russia to include pharmaceuticals, fertilizers, coal, diamonds, chemicals, and ceramics, among other goods. 
• New Trade Routes: The development of new trade routes like the Eastern Maritime Corridor and the Northern Sea Route will also be of interest in deepening trade ties. 
  • International North-South Transport Corridor (INSTC) is another effective connectivity initiative to increase Indo-Russian trade.
  • The two countries are also discussing the possibility of launching a trans-Arctic container shipping line and processing facilities along the Northern Sea Route.
• New Bilateral Investment Treaty:  India and Russia are in advanced negotiations for a new Bilateral Investment Treaty (BIT) that is necessary to boost the confidence of investors.

India-Russia Trade Relations: Challenges 

• Trade Imbalance: The skewed trade balance has been an area of concern between the two countries. 
  • For example, during FY23, India had around a $43 billion trade deficit with Russia, which left their exporters with large surpluses in their Vostro accounts in India. 
• Challenges in Rupee- Ruble Trade: Indian refiners are using a mix of currencies to settle most of their Russian oil purchases. Both countries previously discussed trading in their local currencies but this is yet to take off because of currency volatility and the high trade deficit.
  • For example, the Rupee-Ruble trade since the Ukraine conflict has faced obstacles due to the accumulation of Rupees by the Russian side in India.
• Russia’s Over Dependence on China: China enjoys direct connectivity, advanced logistics supply, a high level of trade, and profitability with Russia. 
  • Since the beginning of Russia- Russia-Ukraine conflict, Russia-China cooperation has grown in all directions. 
  • The trade turnover between the two countries reached a record $190 billion last year, increased by another 39% in the first quarter of this year compared with the same period in 2022. 
• Infrastructure and Connectivity Issues: Inadequate transportation infrastructure and connectivity can impede the smooth flow of goods between India and Russia. 
  • The absence of a direct trade route and high shipping costs make exports to Russia a costly affair for India, as it doesn’t share a land border with Russia, unlike China. 

India-Russia Trade Relations: Way Forward

• Addressing Trade Imbalance: A huge imbalance in trade heavily towards Russia is an issue in the Rupee-Ruble trade. To solve this problem, Russia is keen to import manufacturing equipment including machinery from India. 
• Increasing Asia’s Importance for Russia: To compensate for the decline in trade with the West, Russia is looking much more toward Asia. 
  • For India, this could mean broadening our engagement that was overly reliant on the triad of military, nuclear, and space cooperation.
• Providing Solutions to Short- and Medium-Term Challenges in Business: Payments, logistics, and certification were some of the key areas of issues and it is possible to find solutions to them. 
• Improving Rupee-Ruble Trade: To tackle the accumulation of Indian currency in Russia, increasing Rupee trade with third countries common to both India and Russia, where India has a trade surplus can help in ensuring seamless money flow while solving the problem. 
  • For this, India has taken steps to de-dollarize trade while pushing for the internationalization of the Indian Rupee. 
• India as China’s Alternative to Russia: Since the start of the Russia- Ukraine conflict, Russian raw material exports to China and imports of Chinese goods have sharply increased. 
• Sanctions from Western countries made Russia vulnerable, which has prompted China to use its economic leverage, forcing humiliating and one-sided concessions. 
  • However, India provides Russia with a choice of reliable partners, capable of ensuring the inflow of necessary goods to the Russian market.

Must read the linked article Russia May Pull Out From the Comprehensive Nuclear Test Ban Treaty here.

Conclusion:

As India and Russia witness a substantial growth in bilateral trade. However, addressing trade imbalances, enhancing connectivity, and exploring diversified partnerships will be crucial for sustaining and strengthening their economic ties in the evolving global landscape.