Experts named the main problems for Russia's trade with India

The main obstacles to the development of trade and economic cooperation between Russia and India are the complex geopolitical background and the trade imbalance caused by the excess amount of rupees accumulated by Moscow. Such conclusions are contained in the report of the Russian International Affairs Council (RIAC) “Russian-Indian relations in a broader geopolitical context” (available to RBC).

Additional difficulties are created by restrictions that prevent the flow of currency back to India, differences in the foreign and energy policies of Moscow and Delhi, the risk of secondary sanctions, limited investment cooperation and the sensitivity of technological exchanges. According to Russian and Indian analysts, trading partners need to make structural changes in bilateral trade and diversify areas of mutual investment.

How the political background hinders cooperation between Russia and India

As the authors note, despite the growth in trade between Russia and India over the past two years, there are fears that this trend will decline due to the difficult geopolitical context. “Year after year , Moscow is increasingly turning east , strengthening its ties with CHINA, while New Delhi is turning west, strengthening ties with the United States . If this trend continues, the two friendly countries may ultimately find themselves in opposing geopolitical and economic blocs, dividing the Eurasian space into two parts,” the document says. The implementation of such a scenario will complicate not only the development and expansion of bilateral relations, but even their maintenance at the current level.

Trade between India and Russia reached a record $49.3 billion in the 2022/23 financial year, exceeding the $30 billion target by 2025 set by the two heads of state in 2014. Fuel and fertilizers accounted for 91% of this volume. For the first time in history, Russia entered the top three largest trading partners of India and was second only to the United States and China.

Experts especially note the difference in the two countries’ approaches to interaction with China, India’s main regional opponent and at the same time one of Russia’s closest partners. New Delhi fears that the close partnership between Moscow and Beijing, as well as the possible emergence of a military alliance between the two countries, could harm Indian interests in the Indo-Pacific region. Delhi is concerned about rapprochement with Pakistan - the local political elite and the media believe that Moscow is playing the “Pakistan card” in order to extract concessions from its Indian partners.

Russia is concerned about India’s participation in American military-political structures like QUAD (an informal alliance that also includes Australia and Japan ), which Moscow considers the Asian analogue of NATO, and QUAD-2 (which unites the usa, India, the UAE and Israel). Another negative factor is India’s growing focus on Western arms suppliers, although Russia previously dominated (according to the Stockholm Peace Research Institute , Russian manufacturers account for 40% of the Indian arsenal).

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Only a “sober, frank dialogue” between Russia and India will help resolve these difficulties, and not the “mutual admiration” that often dominates bilateral conferences and seminars, the RIAC report warns. Its authors emphasize that the expert community of the two countries should focus on the challenges of the future and pay attention to both differences in national interests and points of intersection.

In particular, it is in the interests of Moscow and Delhi not to take one side or another in the upcoming confrontation between the United States and China , but to act as a united front against the bipolar world order and promote multilateralism. “The privileged strategic partnership between Russia and India continues to serve as a model for great power relations, even as both sides remain divided on various issues,” the report says.

How Russia and India can increase bilateral trade

Despite the covid-19 pandemic and Russia’s disconnection from SWIFT, Moscow and Delhi managed to record a record increase in the volume of bilateral trade. This was also facilitated by the development of alternative payment mechanisms to circumvent sanctions ; among these mechanisms, experts name mutual settlements in national currencies and barter trade. The parties are working on new digital financial instruments, including within the BRICS framework, which will allow them to further increase trade turnover, the RIAC believes.

In 2022, Russia increased oil supplies to India 19 times compared to the previous year (up to 41 million tons) and took first place among suppliers to the country. RIAC forecasts that it will further increase supplies of oil, liquefied natural gas (LNG) and coal by 2030–2035, as Moscow needs to find an alternative to closed European markets and Delhi needs a sustainable energy supply for its fast-growing economy. “For these reasons, we expect Russian energy companies to increase direct supply of energy resources, and Indian investors are likely to increase participation in the development of Russian oil and LNG fields through the acquisition of companies licensed to explore and produce hydrocarbons,” the report predicts.

However, the increase in the share of mutual settlements in national currencies creates serious difficulties: the trade deficit (Indian exports amounted to only $3.1 billion in the 2022/23 financial year) has led to the fact that Russia has accumulated a large surplus of rupees, which it finds it extremely difficult to spend. According to Indian and Russian experts involved in the report, this is one of the most complex issues facing the two countries and significantly complicates their trade settlements.

A potential solution could be investment in infrastructure projects or manufacturing in India under the national Make in India program launched by Prime Minister Narendra Modi in 2014. In particular, Russia could create joint ventures in India to produce goods that are in short supply on the Russian market due to sanctions, such as auto parts and generic drugs. The development of joint projects could be facilitated by tax holidays and other incentives similar to the Russian “cluster investment platform”, which provides preferential lending for manufacturers of priority products and subsidies for pilot batches of goods.

India, in turn, can solve the problem of trade imbalance by increasing exports both in traditional industries (groceries, agricultural products , medicines and auto parts) and in new ones - modern industrial equipment, mining and oil refining, food processing, printing and printing equipment, aviation components, medical equipment, as well as electronics and textiles. Another promising area of ​​cooperation, according to RIAC, is the EXPORT of highly qualified Indian labor to Russia.

Finally, the simplification of customs procedures and the development of logistics, primarily the Northern Sea Route and the North-South transport corridor, which will significantly reduce cargo delivery times, can play a critical role in the development of trade. Currently, it takes 30 to 45 days to deliver cargo from St. Petersburg to Mumbai via the Suez Canal; With the full launch of the North-South corridor, this will take from 15 to 24 days.

In what new areas can Moscow and Delhi establish ties?

The authors of the RIAC report also called for a focus on developing areas of cooperation not related to energy. These are, for example, the development of ocean resources (the so-called blue economy ), tourism, advanced technologies, fintech, digital public infrastructure, shipping, space and industrial raw materials. Joint activities in these areas will make economic ties more resistant to possible shocks in the energy market.

India and Russia can also develop cooperation in high-tech industries, such as renewable energy and robotics; these developments could then be used in various economic sectors, from healthcare to agriculture. To achieve this, RIAC analysts proposed establishing bilateral and multilateral research institutions and structures within existing political associations like BRICS+. The Joint Institute for Nuclear Research in Dubna, in particular, can serve as a model.

Russian and Indian experts advised to increase the number of grants for joint projects in the field of science, technology and innovation by five to ten times in the next five years, including with the help of BRICS+ instruments. The governments of the two countries were also recommended to encourage research cooperation involving the public and private sectors, involving the largest corporations of Russia and India in various joint projects, for example through grants, R&D contracts, crowdsourcing initiatives of Rosatom, Sberbank, Tata, Reliance and etc.

As the authors of the report note, partnership in innovative areas is greatly hampered by the “exotic” perception of India and the lack of awareness of Russians about its technological achievements. “Therefore, one of the main tasks is to rebrand the image of India in Russia, positioning India as a country of the 21st century, as a civilization looking towards the future, albeit based on the unshakable foundation of the past, as a territory of not only wonderful traditions, but also limitless opportunities,” sums up summary authors.

Aleksey Kupriyanov, Candidate of Historical Sciences, HEAD of the Center for the Indian Ocean Region of the IMEMO RAS, noted in a conversation with RBC that it is the underdeveloped areas of trade and economic cooperation that require close attention that, as a rule, have the greatest potential. “This is cooperation at the level of small and medium-sized businesses, joint production of equipment and components, which Russia is in greatest need of after breaking contacts with Western companies (engines and engine parts, cars and spare parts for them, machine tools), chemical production, ideally the creation of distributed production chains involving third countries,” he explained.

The expert calls the primary problem in the short term not the trade imbalance, but problems with mutual settlements, which are complicated by Western sanctions. In the long term, the greatest difficulty is the unwillingness of Russian companies, legislators and officials to quickly adapt to the changing situation. “Due to sanctions and conflicts, the gray zone in the global economy has expanded significantly, we must learn to work with it, this requires changes in regulatory mechanisms,” concluded Kupriyanov.