‘The core feature of today’s geopolitical manoeuvres is that they have both eastern and southern implications’
| Photo Credit: AFP
In 2022, Moscow cut its economic ties with Europe and made a U-turn to the Asian countries. As a result of this move, the knot of neoliberal interdependence between Russia and Europe became undone, with costs to the global economy.
The need for such a turn was repeatedly proclaimed since the financial crisis of 2007–08 but was ‘adjourned sine die’. For the Russian political leadership, the core motives remained well-established. The country’s economy was closely woven into western markets and financial structures and, therefore, remained susceptible to external shocks resulting from political and ideological confrontations.
The core feature of today’s geopolitical manoeuvres is that they have both eastern and southern implications. Russia’s $240 billion trade with China did not overshadow the dynamism of India-Russia ties, which, for many, proved to be the most important outcome. The countries without common borders and well-established logistic routes have managed to build up trade relations almost from scratch. The opportunities offered by India, previously considered as terra incognita for Russian business, spurred discussions on the necessity to change the economic grounds of cooperation.
The factors that mattered
For Russia, political imperatives were a prerequisite for enhanced commercial relations. India’s position of non-involvement in the European conflict served as a guarantee for stability in policy planning. For India, on the contrary, it was the economy that led to the extension of political contacts, as foreign policy is driven by internal factors.
These distinct positions have become a subject for convergence and a shift to more pragmatic grounds. India is not willing to make any type of political commitment. But, at the same time, it imports Russian oil which helps it with savings and also provides it an opportunity to re-export it to Europe as a petroleum product. Another case is the import of fertilizers and sunflower oil from Russia that helps to reduce food inflation amid climate shocks.
In just three months after the Ukraine conflict, the countries have covered much of what they have failed to do in decades. Russia is India’s fourth large trading partner. In June 2022, the level of bilateral trade surpassed $3.5 billion. Two years later, in May 2024, the figure rose to $7.5 billion. If one factors in unofficial trade, the figure could rise to several billion. Thus, in just one month, the trade turnover figure exceeded that of the entire 2021.
The meeting between Indian Prime Minister Narendra Modi and Russian President Vladimir Putin in July this year resulted in the announcement of setting up a bilateral trade target of $100 billion by 2030. In the context of the relatively low capacity of the Russian market, problems in access to foreign technologies, low-developed logistic routes and a sanctions regime, achieving this target will require additional political efforts.
Some hurdles
The first problem arises from the lack of economic complementarity between the two countries. Russia is now promoting its own industrial production and pursues a policy of moderate technological nationalism. It is the same with India which is pursuing a ‘Make in India’ agenda.
Second, the sanctions regime limits opportunities to overcome trade imbalances. Small and medium enterprises could become major factors in the boosting of bilateral trade and investments, but the countries lack a stable payment mechanism, an investment protection agreement, a clear arbitration system and single logistics operator for transport corridors which can provide a full spectrum of transportation services for exporters. Some of these obstacles could be eliminated by having a better presence of Russian banks in India — by the means of integration of national payment systems and creation of the payment gateways in order to soften the effect of sanctions in the financial sphere.
Third, technology and investments. This area was a hallmark of the India-Soviet friendship but became the main casualty in the collapse of the USSR. Except the nuclear and military spheres, the current bilateral interaction lacks big investment projects in the secondary sector as well as research programmes of significance. Today’s technology cooperation should be more business oriented. Construction and the modernisation of factories, power plants, refineries and mines in India are promising areas.
Finally, cooperation in science and education does not have the desired pace of development. It should include projects in the science, technology, engineering, and mathematics (STEM) subjects and also in social science, which would help to eliminate the information vacuum between each other.
The outlook
The Ukrainian crisis has become the major incentive for Russia’s turn to India but it limits the scope of the bilateral engagement. India is now facing pressure from outside and Russia is directing its financial resources to sustain its economy. These circumstances have caused scepticism about the stability and life time of the current thaw.
In the midterm, there could be a certain contribution from the booming military complex. Russian industry will be able to increase its share in the Indian market due to the low-price characteristics of products. With prospects of a transition of some Russian production capacity from the military to the civilian sphere, engineering will cause no less interest. Agricultural and construction machinery, railroad trains and medical equipment could be bound for India. At the same time, India could provide Russia with a range of products less accessible for business and consumers. Smartphones and digital processing units have already become India’s main export items.
The major problem is about the quality of trade. India’s export misses engineering products; smartphones exported to Russia are manufactured in the assembly plants of foreign companies. In order to have a more stable footing, India and Russia should look at how to increase integration in bilateral production chains and negotiate issues of localisation.
Ivan Shchedrov is Junior Research Fellow at the Institute of World Economy and International Relations of the Russian Academy of Sciences (IMEMO-RAS)
Published – September 28, 2024 12:08 am IST