How India and Russia are expanding their trade ties
India is Russia’s biggest market for arms exports, and the two countries share a longstanding partnership in the arms trade.
In 2018, India signed a deal to buy US$5 billion (€4.6 billion) worth of Russian defense systems. Despite this, the countries have not traditionally been strong economic partners. One analyst describes their current ties as one-dimensional, driven by Russian sales of arms to India.
Both countries rank well down on each other’s lists of trading partners. Indo-Russian trade totaled only about US$11 billion last year, with India accounting for just one-fifth of this.
However, this may soon change following an agreement between India and Russia to try to increase two-way trade to US$30 billion by 2025.
The countries have agreed to boost their industrial dealings, tap their natural and human resources, and invest in advanced technology. They have also found common ground in the areas of increasing free trade and countering protectionism.
Increasing bilateral trade
The goal of increasing trade to US$30 billion dates back to 2014. But as 2025 draws near, India and Russia have recognized that more needs to be done to meet the target.
Currently, their trade relations revolve chiefly around energy, defense, pharmaceuticals, and minerals. Nuclear products such as reactors, boilers, and machinery make up a large component of their energy-related trade.
“Both sides prioritize strong, multifaceted trade and economic cooperation as the foundation for further expanding the range of India–Russia relations,” they said in a statement in September.
India and Russia have particularly cited the potential to boost trade in agriculture. They look to grow Russian businesses’ participation in the ‘Make in India’ program, which encourages businesses to manufacture products in the country, and Indian companies’ investments in projects in Russia.
To promote trade, the two countries are also planning to improve transport infrastructure, refine import and export procedures, and streamline technical and other requirements. They aim to create an environment that encourages entrepreneurial activities and investment.
While India and Russia have no bilateral free trade deal in place, they plan to work together to eliminate trade barriers through dialogues using platforms such as the proposed Eurasian Economic Union (EEU)–India trade pact.
The economic union comprises Armenia, Belarus, Kazakhstan, Kyrgyzstan, and Russia — its de facto leader. Official negotiations with India have not started as of August 2019.
It is still early days but if signed, the deal will help India and Russia achieve their 2025 trade target, according to Chris Devonshire-Ellis, Founding Partner of professional services firm Dezan Shira & Associates.
“When the deal kicks in and reduces tariffs on goods, the market costs of those products within the deal will go down, and that will make them attractive to consumers in each country,” he said.
Increased trading with Russia and other EEU members might also boost India’s trade outlook, which is now in negative territory for the first time since 2013, according to DHL’s Global Trade Barometer. In the three months to September 2019, the GTB index for India has dropped by four points to 49, due to sluggish ocean trade.
Part of the Indian–Russian plan is to step up cooperation within the Russia-India-China (RIC) grouping, to promote a global and regional agenda including countering protectionism.
The three countries have been holding regular meetings at the head of state and ministerial levels since 2002. During one of these meetings at the G20 Summit in Osaka, Russian President Vladimir Putin highlighted how the RIC partnership could become a model for creating a world order that rejects the policy of unilateral actions and protectionism.
Indian Prime Minister Narendra Modi has also expressed concern over protectionist policies. “Economic cooperation is the foundation of our people’s future,” he said at a regional summit in June. “One-sidedness and protectionism have not done any good to anyone.”
The United States’ America First policy and the increasing use of unilateral action have come under criticism for causing trade tensions and contributing to slowing global trade.
Still, India continues to work with everyone, including the U.S., its largest trading partner.
“Nevertheless, there appears to be an acknowledgment from New Delhi that it is better not to put all eggs in one basket and to spread trade and investment around rather more [partners],” said Devonshire-Ellis.
Within the RIC bloc, Russia and China increasingly see the U.S. as an unreliable trade partner, said Devonshire-Ellis. “They are in the process of creating alternative trade blocs and financial systems to reduce risk and interference from Washington in their trade and political systems.”
But in India, there is a sense that the country cannot afford to distance itself from, or antagonize, the U.S. given its reliance on this market for exports.
“We will have to see how India develops its relations with the U.S.,” said Devonshire-Ellis.