Can India-Russia Trade Triple by 2025?


Back in 2016, India and Russia decided to increase bilateral trade to USD 30 billion (per year) and mutual investment to USD 15 billion by 2025. This timeframe currently stands at mid-way, but whereas mutual investment goal has already been crossed, bilateral trade figures still highlight a languishing prospect. Can the upcoming projects and policies from the two sides succeed in achieving the USD 30 billion mark?

The sorry state of Indo-Russian trade

 In fiscal year 2019-20, Indo-Russian trade stood at USD 10.11 billion and between January-October 2021, it amounted to USD 7.2 billion. Back in 2015, before the goal of USD 30 billion was set, bilateral trade stood at USD 7.83 billion (with Indian export to the tune of USD 2.26 billion and imports from Russia at USD 5.57 billion).

According to OEC (Observatory of Economic Complexity) data– in 24 years Indian exports to Russia have increased at an annualized rate of 4.73 percent (from USD 1.04 billion in 1995 to USD 3.15 billion in 2019). In the same time frame, Russian exports to India have increased at an annualized rate of 9.64 percent (from USD 742 million to USD 6.76 billion).

This brings one to the obvious question that how it is possible to increase the bilateral trade from USD 10.11 billion of 2019, to USD 30 billion in 2025. And what sort of trade balance the two countries are looking towards? It also needs to be noted that the previous target envisioned in 2011 to increase trade to USD 20 billion by 2015 was hardly achieved.  

India’s top exports to Russia consist of packaged medicaments, products like broadcasting equipment, and tea, while Russia’s top exports to India consist of energy sector commodities like crude petroleum, coal briquettes and rough diamonds. This means that increasing bilateral trade will either look towards increasing the share of these commodities (which poses several issues due to a comparatively stagnant phase of economies going on in both countries) or the two countries will have to look into diversifying the trade baskets (which poses several issues like finding and establishing a space in the market as well as improving connectivity between the two countries to make market penetration possible).

Traditional challenges

Several long-standing issues for India and Russia have created difficulties for expanding trade, either bilaterally or even through multilateral mechanisms. Besides the most highlighted bottleneck of poor connectivity posing issues for transportation of goods in economically attractive timeframe; lack of awareness by private entities about each other’s economies (beyond the energy sector which is overseen by governments) and bureaucratic delays have been the often discussed issues. After years of discussions, both India and Russia are now coordinating in several projects and policies in this regard.

Increasing trade through better connectivity

INSTC (International North South Transportation Corridor) is a 7200 km long multimodal network of ship, rail, and road route for moving freight between India, Iran, Azerbaijan, Russia, and Central Asia. It was envisioned in 2000 and since an agreement in 2002 between Iran, India and Russia, the network has been in development. The western wing of the INSTC became operational in June this year, connecting India and Russia via  Iran and Azerbaijan. In comparison to an average time of 35-40 days for cargo containers travelling between Mumbai (India) and St. Petersburg (Russia), the time through the INSTC falls to 20-22 days. For India, the operationalisation and success of INSTC will lead to tapping of new markets and access to energy resources from Central and North Asian markets which till now have lagged due to accessibility issues. For Russia, this will embolden the Russia-led EAEU (Eurasian Economic Union) plans which Moscow hopes to expand with India as a full member. Further, INSTC is envisioned to get synchronised with projects like the upcoming North Sea Route, thus making the INSTC a scalable connectivity project.

Another connectivity project envisioned by India and Russia is the more recently announced Chennai-Vladivostok maritime corridor, aimed at enabling cargo shipping between the two eastern ports of Chennai (India) and Vladivostok (Russia) in a reduced time of 24 days, in comparison to more than 40 days currently needed for shipping from India to Russia’s Far East through Europe. This project also holds greater importance considering the recent rejuvenation in interest between the two countries to expand and strengthen trade, investment, and cooperation in Russian Far East (RFE).

Market expansion as a catalyst

 EAEU is the flagship Russia-led project for creation of a trade bloc connecting Eurasian economies with the broader Asia-Pacific region (which can serve as an alternative to European Union). While the membership already consists of Armenia, Belarus, Kazakhstan, Kyrgyzstan, and Russia, the bloc has been gradually expanding in recent years through FTAs (Free Trade Agreements) with peripheral, developing and developed economies like Iran, Vietnam, Singapore, and Serbia. More trade agreements which can serve as major additions to the bloc are currently underway. India is one of the most special cases in this regard which can bring its huge market and can benefit from the interesting prospects of opening of earlier untapped markets for India in the Eurasian region.

Rejuvenation by structural changes

An often-highlighted reason for slow improvement in Indo-Russian bilateral trade has been the over-dependence on the G2G (Government-to-Government) mechanism. While India started privatisation back in 1991 when economic reforms were introduced, such development has not occurred in Russia and state remains the controlling entity in majority of Russian businesses which trade with India (mostly in sphere of energy with companies like Rosneft and Gazprom). It is an open secret that G2G mechanisms lead to delays when compared to B2B (Business-2-Business) mechanisms.

For solving this, in recent years both countries have encouraged connections between industries and emphasized on holding B2B as well as G2B events to explore trade and commerce opportunities. This emphasis has been visible in the recent visits of Indian delegations to Eastern Economic Forum, Arctic Forum, and the St. Petersburg International Economic Forum which now has a MoU (Memorandum of Understanding) with India’s CII (Confederation of Indian Industries) for regular institutionalised B2B interactions and exchanges. According to Indian embassy in Moscow, around 40 sectors specific B2B events were organised in 2019.

Another structural change that India and Russia are trying to bring since 2016 is the establishment of ‘Green corridors’ for smooth facilitation of goods. While Russia already has these corridors with several countries like Finland and Turkey, the implementation has been lagging in case of India and Russia. However, in light of operationalization of the INSTC and upcoming Chennai-Vladivostok maritime corridor, establishment of Green Corridors which can accelerate the movement of goods across customs, will surely become a mechanism under serious consideration for development.

Emerging challenges and the way ahead

There are several points of divergence between India and Russia when it comes to implementation of projects and formulating policies to achieve mutual interests as well. One such case is Moscow’s decision to join Beijing’s flagship project of BRI (Belt and Road Initiative) which India has snubbed as it violates Indian territorial integrity by passing through PoK (Pakistan-occupied Kashmir). While Russia sees this as an opportunity to utilise BRI infrastructure to widen EAEU’s reach and create a ‘Great Eurasian Partnership, competing in a marketing flooded by Chinese products will be a factor which might create tensions for New Delhi.

In Far East, New Delhi has expressed an increasing ambition to invest and develop infrastructure, even in partnership with third countries like Japan. Since 2015, Chinese investment has made up for about 85 percent of the total foreign investment in the RFE region. How China reacts to the now increasing presence of other players in the region, especially India, will have to be seen.

In conclusion, tripling of Indo-Russian trade from the present amount to reach the set goal of USD 30 billion in just four more years is unarguably a tall order, especially when considering the past records.  But given the recent emphasis on increasing connectivity and improving structural mechanisms, India and Russia seem to be accelerating the pace to achieve this goal. However, any delay in these projects will keep the trade between the two in the current dismal state.

Divyanshu Jindal
Divyanshu Jindal
Divyanshu Jindal is a Researcher on Geopolitics & Tech at NatStrat, India.


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