India-Russia trade poised to grow beyond defence and energy

The Dollar Business Bureau

Vladimir Putin is expected to meet PM Narendra Modi tomorrow. Putin's visit to India comes at a time when Russia is facing several challenges including isolation over the Ukraine crisis and low oil prices

  Vladimir V. Putin, President, Russian Federation, will be in India to take part in the 15th Annual India-Russia Summit today, but his visit promises to be different this time, mainly due to the fast changing geo-political environment. Since the signing of the "Declaration of Strategic Partnership between India and the Russian Federation" in October 2000 in New Delhi, the two traditional friends, Russia and India, host annual summits between the Prime Minister of India and the President of the Russian Federation on a rotational basis.   However, most of the previous summits have focussed on improving defence ties and energy cooperation, support for India’s claim to a seat in the UN Security Council and support for India against Pakistan and China. Unsurprisingly, Indo-Russia ties have remained in political shadows for a long time and commercial ties never came to the fore. According to India’s Ministry of Commerce, Indo-Russia trade stood at around $6 billion in FY2013-14, which is down from around $6.5 billion recorded in FY2011-12. India also runs a trade deficit of around $1.7 billion with Russia. Moreover, India has lost share in exports to Russia in sectors such as pharma, tobacco, garments, and chemicals in the last few years, and has yet to make inroads in promising sectors such as machinery, plastic, electrical and electronic components and medical goods.

Source - Ministry of Commerce, India

  However, it is likely to change this time, mostly because Russia needs India more than it did in the past. The Ukraine crisis has isolated Russia to a great extent and while it has managed to keep the troubles away, Russia has had to ban imports of several items from Europe, from cheese and apples to meat and animals. It is estimated that Russia has to find alternative markets to import food worth around $16 billion in the coming months. Plus, India’s renewed and unexpected improvement of ties with USA is also likely to make Russia pay more attention to India. Unlike what people believed, India’s commercial ties with USA remains strong and growing. USA is India’s second largest trading partner and the largest export destination. Importantly, India has a trade surplus with USA which stood at about $16.6 billion in FY2013-14 and stands at around $11.6 billion during April-September 2014. However, such figures also suggest that India-Russia trade has huge potential. There are encouraging signs of a genuine improvement in Indo-Russia commercial ties as well. Russia has already allowed some Indian companies to export meat to Russia, and industry representatives say that exports of fruits, vegetables, seafood and even dairy items are likely to commence soon. Russia’s phyto-sanitary watchdog, Rosselkhoznadzor, plans to depute its officials on a permanent basis in India to help monitor standards, which was the biggest hurdle for Indian food exporters until now. Moreover, Dmitry Rogozin, Deputy Prime Minister of the Russian Federation, had promised Indian companies of assistance in establishing their presence in Russia during his visit last month. Diamond trade between the two countries is also likely to get a fillip with India’s announcement that it is creating a Special Notified Zone (SNZ) which will allow Russia’s ALROSA to sell its diamonds directly to companies in India. A recently conducted joint study by the two countries said that the International North South Corridor Project (INSTC) could boost bilateral trade significantly. It added that Indo-Russia trade cooperation could improve in mining, civil aviation, infrastructure, IT and steel. The preparations and studies are over, now is the time for approvals by Vladimir Putin.    

This article was published on December 10, 2014.