In the normal course of things, there would have been little attention paid to the New Delhi visit of the Russian Deputy Prime Minister Denis Manturov. Holding the concurrent appointment as the Russian Trade and Industries Minister he is here as the co-chair of the 24th India-Russia Inter Governmental commission on Trade, Economic, Scientific, Technological and Cultural Cooperation (IRIGC-TEC) meeting with External Affairs Minister S Jaishankar, a fairly routine affair.
The Russia-Ukraine war has had a transformative impact on global geopolitics. Western sanctions on Russia have cut it off from international trading systems and its traditional markets in Europe. This has presented a massive opportunity to Russia’s Asian neighbours like China and India who have significantly boosted their trade with Russia in the past year.
One of the wonders of the India-Russia relationship has been the fact that despite a robust political relationship and a strong arms transfer relationship, both the countries have had anaemic trade ties.
On India-Russia Trade Ambitions
As per Indian figures, bilateral trade during the year 2020 was just about USD 8.1 billion, Indian exports amounted to USD 2.6 billion, while imports from Russia were USD 5.48 billion. At the time, the two sides had the ambition of taking their trade to USD 30 billion by 2025.
But the changes wrought by the war have led to a quadrupling of Indian imports from Russia to USD 46 billion in 2022-23. This was an outcome of the Indian decision to import discounted Russian oil made available in abundance by the Western embargo following the Russian war on Ukraine.
India and Russia have now begun to see how they could consolidate these developments. Visiting Russian DPM Manturov who is also the trade minister, has been holding talks with his counterparts in India on a Free Trade Agreement (FTA), as well as a Bilateral Investment Protection Agreement (BIPA).
On Monday, he told in Russia-India Business Dialogue 2023 organised by the Federation of Indian Chamber of Commerce and Industry (FICCI) that both countries are keen on a "quality increase” in trade cooperation. He said that Russia paid special attention to the issues of mutual access to the markets of our countries and working together with the Eurasian Economic Commission, Moscow “was looking forward to intensifying negotiations on a free trade agreement with India.”
External Affairs Minister S Jaishankar who was also present noted that the COVID pandemic had disrupted discussions on an FTA between India and the Russia-led Eurasian Economic Union (EEU). He called on both sides to diversify and expand the basket of goods and look into the potential offered by auto spare parts, electronic components and medical devices, food, and agricultural products, he added.
“We are determined to make India a global manufacturing hub. It is our strategy to position ourselves as a major manufacturing hub, strong trader, and service provider,” Jaishankar said.
On Investments & Economic Co-Operation
He also noted that the two sides would also be discussing the payment issues. The Russians are shut out of the global SWIFT system of money transfers. But discussions are ongoing and the minister spoke of the scheme of International Trade Settlement in Indian Rupees through the Special Rupee Vostro account system.
The Russian minister said, “We would like to widen the use of national currencies and those of friendly countries to minimise risks related to currency settlements." This would be music to the ears of the Indian side which has been keen on increasing the use of its rupee currency for trade with Russia.
The FTA talks and also a move towards BIPA signal a clear step up in economic relations between the two countries and come even as the western countries have been nudging India to distance itself from Russia over its February 2022 invasion of Ukraine.
The Russians cannot be unaware the current trade situation is not sustainable. It is highly skewed towards Russia and hence, there is a need for it to import manufactured goods from India. Manturov himself acknowledged that their USD 200 billion trade with China was evenly balanced.
Few details are available of the outcome of the Inter Governmental Commission that took place on Tuesday. However, a Ministry of External Affairs press release noted that the two sides “reviewed the entire gamut of bilateral trade and economic relationship, and agreed to work together to unlock its full potential.” It added that they would also address the other issues of trade deficit and market access. In his visit, Manturov also met the Commerce and Industries Minister, Finance Minister and the NSA.
Even before the war, the Modi government had looked at the potential in Russia to enhance its trade and relationship in the hydrocarbon sector. ONGC acquired a 20 percent stake in the Sakhalin reserves in 2001 and 2017, Tata Power secured a mining licence for a thermal coal mine in the Kamchatka peninsula.
India’s Contribution to Russia’s Far-East & Potential of Joint Projects
In 2015, Russia established the Eastern Economic Forum to promote trade and investment in the Far East, and attending its annual meeting for the first time in 2019, Modi pledged USD 1 billion line of credit for the development of the Russian Far East. In addition, he signed an MoU to promote the Chennai-Vladivostok Maritime Corridor to increase bilateral trade between the two countries.
The way India sees it is that the region is labour scarce, but resource-rich, and India can provide labour surplus to transform the area. Given the sheer scale of the region and the resources it demands, the Russian Far East remains a potential to be exploited. China being proximate to the region is already a significant player in the economic life of the region.
There is an older Indo-Russian project that has not managed to meet its enormous potential. This is the International North South Transportation Corridor that seeks to link India’s western ports by sea to Iran and thence, by rail to Russia. Considerable planning has gone on in shaping this corridor which more or less already exists physically. However, the poor level of India-Russia trade limits its use. Further, US sanctions on Iran create their own set of problems for Indian companies trying to use the Iranian ports.
In many ways, we need to understand that the opportunities for India-Russia trade have opened up inadvertently as an outcome of the war. Earlier, our ties were limited to the defence area, while Russia focused its efforts on ties with Europe.
Now, we have a glimpse of the much wider ties we can have with a country with the vast resources of Russia. It is in our interest to build on the potential and ensure that regardless of the outcome of the war, India-Russia ties can reach a higher, more productive, and mutually beneficial level.
(The writer is a Distinguished Fellow, Observer Research Foundation, New Delhi. This is an opinion piece and the views expressed are the authors' own. The Quint neither endorses nor is responsible for them.)
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