Since then tremendous changes took place globally and in our two countries. As the world economy struggled to recover from the consequences of the pandemic, new testing times arrived in 2022 with unprecedented sanctions against Russia, interrupted food and energy supplies on the global markets and geopolitical instability exceeding the levels of the Cold War era.
At the same time, trade between India and Russia reached the record level of 44.4 bln USD during the financial year 2022-2023, having surpassed the targets set by the leadership of the two countries. Today Russia is India’s 5th trade partner, after US, China, UAE and Saudi Arabia. However out of this volume just 2.8 bln USD account for India’s exports to Russia, a declining figure. India’s deficit in trade with Russia is currently second in volume, after its trade with China. Hence, today and in the foreseeable future the two countries will face the new challenge of correcting this trade imbalance and diversifying the avenues and formats of their economic partnerships.
Decision makers on both sides are determined to maintain the relationship between Moscow and New Delhi as special, privileged and refer to it as one among the steadiest in the world. The two countries’ regulators aim to work further on removing multiple bottlenecks and barriers, including those in cross-border payments, logistics and tariffs, in order to respond to the new challenges, in the mutual interests of the two countries. One of the most important tasks in front of the Indian and Russian authorities at this stage – is securing bilateral financial and goods streams from hostile interference and making them more efficient. Protection of investments is also high on priority.
Still some experts are of the opinion that it will be next to impossible or very difficult to increase India’s exports to Russia to balance India’s growing imports (that now include not just crude oil, but also fertilisers, coal, metals, wood products, as well as animal and vegetable oils). However, there exists a number of recently emerged prerequisites that make this task more realistic than before.
One of these prerequisites – is the macroeconomic stability in Russia. Despite the common perception, spurred by the media, Russia managed to avoid difficulties like hyperinflation (currently inflation rate for 2023 is expected at 5,3%) and recession (with GDP growth at varying estimations, between 0,7-1,2% for 2023). One of the important tasks faced by the government in Moscow is balancing between mobilisational economy and maintaining the normal consumer and social sentiments. So far this task has been dealt with quite successfully too, with high level of resilience – politically, socially and economically. It helps to have self-sufficient energy and natural resources sectors, strong agriculture, but also well-developed education systems and deep cultural traditions. It also helps to have reliable and neutral partners like India, oriented towards own national interests, first and foremost, and not sacrificing the interests of their own people for the sake of someone else’s political agenda.
India’s consistent independent course, widely recognised and respected in Russia, has inspired Russia’s business community to consider new trade links with India much more attentively. The Russian business leaders look at India differently today than some 10-15 years ago not just because they are forced out of their comfort zone and because they face a very practical necessity to search for alternative suppliers, markets and opportunities. It is also India’s reformist course and developmental achievements that provide those other prerequisites for renewed business activity between the two countries. They include growth of manufacturing sector in India, increase in the purchasing power of India’s middle class and accelerated development of digitisation both in India and in Russia, to name a few. The interest towards India and its market trends in Russia is enormous. There is a lot of natural curiosity and appetite for knowledge about India of today. At the same time – not too many overinflated expectations, that have been the legacy of the Soviet era. The new generation of entrepreneurs in Russia has very realistic outlook about the complexities of working with India. They learn quickly about India’s changing requirements and capabilities. India’s tremendous success on the path of digital transformation, as well as its booming startup scene and VC activity are now quite well-known in Russia. Russian digital technology – focused companies, venture capital firms and startups are on the forefront of business activity between the two countries outside the traditional government-to-government segment. Though numbers are still modest, they have arguably the most relevant and interesting experience of working with the new India. One of the most advanced sectors here is EdTech, where the Russian companies combine expertise in STEM disciplines with creativity and much needed adaptation to the local market, responding to India’s strong requirements for educational and vocational services. Digitisation of production is likely to grow rapidly in the near future. There are some good examples of serving the needs of India’s industry with Russian digital solutions, famous for their advanced algorithmic foundations, too. Smart navigation and logistics, utilities, urban infrastructure and cyber security are just some of the areas for possible joint work in IT in the future. When promoting its digital solutions, Russia emphasises the importance of technological sovereignty that will be essential for countries like India and Russia in the world of tomorrow.
Infrastructure is another sector where there is a good fit. Smart grids, distributed power systems and energy efficiency, as well as the development of gas transportation and consumption infrastructure and upgrading India’s prodigious railway system also have high significance and potential. In March 2023 the Russian-Indian consortium of Transmashholding, the leading Russian company in railway engineering, and Rail Vikas Nigam Ltd. have jointly won a tender for production, supply and maintenance of 120 Vande Bharat Express high-speed trains. The contract is worth 1.7 bln USD and presents an important milestone for Russian companies within the fundamental “Make in India” framework. Shipbuilding and space industry, that has recently opened up to private participation in order to better serve the needs of India’s rapid development – is where opportunities for Russian participation as well as joint development and production in India are high, too.
At present, India’s declining export to Russia predominantly consists of pharmaceuticals and organic chemicals. Export positions can be considerably broadened towards various types of advanced industrial equipment, mining and oil processing, food processing, printing and polygraphy machinery, auto components, medical equipment, as well as electronics and textiles. Although both countries are now largely self-sufficient in agriculture and food items, opportunities in this sector exist and need to be carefully studied as well. For instance, Indian manufacturers of whiskey are actively expanding their presence in the Russian market and Russian producers of various oils have found ways of growing their exports to India multifold. There are more categories of mutual interest in this sector that require market research and careful examination.
Most importantly, India’s large-scale plans of diversification and strengthening of its manufacturing sector with Make in India and AatmaNirbhar Bharat provide impetus for wide-ranging investment in India with a view of subsequent exports to Russia and third countries in Africa, Asia and the CIS. It is known, generally, that Russia is about prototyping and India is about scaling. Connecting Russian know-how with India’s manufacturing capabilities would benefit both countries. “Build in India – sell globally” is what Russian and Indian developers need to consider.
Of course, natural resources will remain one of the paramount elements of Russian-Indian trade and will be powering India’s economic growth in the future. But as India aims to build greener and cleaner economy, an important mission not just for India, but for the entire global South and the world at large, there will be new avenues of cooperation here as well. Natural gas and nuclear power partnerships will likely to be complemented with supplies of nickel, copper, cobalt, lithium and other rare and non-ferrous metals indispensable for transition to the climate-friendlier systems.
2023 has already witnessed a stream of intergovernmental meetings and bilateral business forums in Russia and in India. They have been very well-attended from both sides. More important large-scale conferences are coming. Renewed appetite for knowledge of today’s Russia shapes up among Indian business circles too. Extending trade outside the traditional scope of goods and building new investment links between the two countries will become possible as a result of this active recalibration.
The author is Head of India Studies, SKOLKOVO Institute for Emerging Market Studies; Research Fellow, Centre for India Studies, Institute of Oriental Studies, Russian Academy of Sciences.