In the financial year 2022-23, on account of a rise in discounted oil exports to India, Russia’s bilateral trade with its strategic partner exceeded $40 billion for the first time. In the previous years, the figure struggled to surpass the $10-11 billion mark, which meant that the share of India and Russia in each other’s foreign trade remained at 1-2%. The surge in oil imports has made Moscow the leading supplier of crude oil to India, capturing about 35% of the market share in 2023. Apart from crude oil, other key imports from Russia include fertilisers, natural or cultured pearls, animal or vegetable fats and oils, iron and steel, etc. The exports from India mainly consist of pharmaceutical products, electrical machinery and equipment, organic and inorganic chemicals, and iron and steel.

Opportunities
The energy sector is billed as a promising area of cooperation, considering the projected increase in Indian demand for oil and gas due to its growth trajectory. Estimates indicate that by 2030, India will become the world’s third-largest energy consumer, heavily reliant on imports. The demand for LNG is also expected to surge supporting green growth, with imports projected to reach 124 bcm per day by 2040. Russia, aspiring to maintain a diversified portfolio of energy suppliers, can play a significant role in India’s energy market. Ongoing cooperation in nuclear energy via the Kudankulam Nuclear Power Plant (NPP) is anticipated to persist, with the plant expected to reach full capacity by 2027.

There is also an opportunity to further cooperation in existing areas of trade like pharmaceuticals, consumer goods, organic chemicals, etc. Russia has expressed eagerness to participate in the ‘Make in India’ programme to boost bilateral trade. Officials have also spoken about focusing on Indian exports to sectors not directly subject to sanctions, which include auto and spare parts, electronic goods and components, medical devices, high-efficiency solar PV modules, textile apparel, white boots, leather, and ceramics. There is also the possibility of expanding Russian exports in areas like metals, coking coal, metallurgical and mining equipment, water treatment and waste incineration equipment, timber and newspaper paper, food and agricultural products, etc. Both sides have also identified areas of cooperation in the Russian Far East, encompassing diamond processing, petroleum and natural gas, coal and mining, agro-processing, and tourism.

With the goal of increasing bilateral investment to $50 billion by 2025, Russia is considering investment in profitable infrastructure projects (such as industrial corridors, roads, telecommunications, energy). Suggestions for India include building a presence in the industrial and technological sectors in Russia. Historically, Russia has mostly invested in India’s oil and gas, railways, petrochemicals, and steel, while India focuses on the hydrocarbon and pharmaceutical industry in Russia.

Challenges
To harness these opportunities, India and Russia must address several issues that have long hindered bilateral trade. The substantial increase in oil imports, while contributing to the overall trade volume, has resulted in a growing trade deficit as Indian exports have not risen proportionately. The Vostro account, established for settlement of trade in national currencies, has seen Russia accumulate Indian currency worth over $40 billion. The aim of boosting exports is further complicated owing to Western sanctions, causing Indian businesses to be wary of the prevailing situation. The uncertainty stemming from these factors, coupled with the outflow of foreign capital from Russia, affects the willingness of businesses to enter the market.

While these issues have emerged after 2022, other factors have persisted over the years in the Indo-Russian economic relationship. The small-scale presence of the Indian private sector in the Russian market, the concentration of trade in a narrow range of products, tariff, and non-tariff barriers, connectivity as well as the declining share of Indian exports in the Russian market in some of the key sectors, including pharmaceuticals and organic chemicals.

The operationalisation of the International North-South Transport Corridor (INSTC) linking India to Russia via Central Asia and West Asia while cutting down cost and transit time has in the past faced challenges due to incomplete infrastructure, high freight rates, uneven infrastructure, and low trade volume. While some shipments have been moving via this route since 2022, the volumes at the moment remain insufficient and the project needs focused intervention by the concerned parties. Another connectivity route proposed is the Chennai Vladivostok Maritime Corridor, which was announced in 2019. It is expected that Russian exports will consist of natural resources from the Far East like oil, LNG, coking coal as well as fertilisers. Information about the sustainability of this route, the nature of Indian exports via the corridor, and the inclusion of other Asian players on this route remains unclear at present. Both sides have expressed optimism about the future of these connectivity links and are engaged in high-level discussions to operationalise them for improved trade.

Addressing the above-mentioned issues and simultaneouslyexpanding trade into newer areas such as high-tech products, joint industrial ventures, health, transport, etc. can give an impetus to India-Russia trade ties. In addition, fast-tracking customs clearance and implementing the bilateral investment treaty after completing the negotiations are expected to help improve economic relations. It is crucial to increase knowledge and enhance awareness about each other’s markets and trade opportunities while incentivising businesses on both sides to improve their presence. In this regard, industrial bodies as well as business/CEO councils on both sides will have to work efficiently in raising awareness and seeking solutions to the challenges described above to facilitate a balanced, high-volume, sustainable bilateral trade engagement between India and Russia.

Dr. Nivedita Kapoor, Research Fellow, International Laboratory on World Order Studies and the New Regionalism, Faculty of World Economy and International Affairs, National Research University Higher School of Economics, Moscow

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