Context

India to begin formal negotiations for a free trade agreement with the Russian-led Eurasian Economic Union (EEU). The EEU has exchanged trade data with the Indian side ahead of the start of the negotiations.

• The joint feasibility study for the FTA was done way back in 2016 and this has been followed by another study by India’s Exim Bank.

About Eurasian Economic Union

• Membership: It is an economic union comprising five post-Soviet states in Eurasia, namely Russia, Kazakhstan, Belarus, Armenia, and Kyrgyzstan.
• Established: The Treaty on the Eurasian Economic Union was signed on 29 May 2014  and was formally established on 1 January 2015. 
• Potential:  It is an integrated single market with 183 million people and combined GDP of over $2.4 trillion as of 2023.

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• India and EEU:
  • Trade: 
    • Russia: It is the top most  trading partner of India in the bloc, with bilateral trade worth $49.4 billion in FY23 skewed in favour of Russia.
      • India’s exports: It stood at $4.26 billion in FY 2024, up from $3.15 billion exports previous year with top exports item include pharma & drugs, iron & steel, processed minerals, marine products, telecom instruments and electronic machinery.
      • India’s  imports: It stood at $61.42 billion in FY 2024 up from $46.21 billion imports in FY23, with top imports from Russia include crude oil and petroleum products, coal, fertilizers, vegetable oil, pearl, iron & steel and newsprint
    • Other 4 countries: Kazakhstan follows a close second with bilateral trade of $641.62 million. Followed by Armenia, Belarus,and Kyrgyzstan with  $134.26 million, $111.81 million, and $56.56 million, respectively, in 2022-23.
  • Significance:  
    • For Russia: To circumvent Western sanctions following Ukraine invasion which  have impacted its trade and economy and cut off access to prominent Western-backed financial systems example: The SWIFT ban 
      • The sanctions have led to an increase in local currency usage for settlement of trade between Russia and its trading partners, including India.
    • Greater Market Access: Domestic exporters from sectors like engineering goods, electronics and agriculture can benefit from the agreement. India is also looking for greater investments in the energy sector. 
      • Example: As India is becoming a base for mobile handset manufacturing, Russia has become a significant buyer.
    • Greater Access to Crude: Russia has became the biggest source of cheap crude oil for India due to western sanctions due to Ukraine war. The surge of crude imports has led to a huge trade deficit with the close strategic partner.