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Can India-Russia Trade Triple by 2025?

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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.


Free-Market Capitalism and Climate Crisis

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Free market capitalism is an economic system that has brought about tremendous economic growth and prosperity in many countries around the world. However, it has also spawned a number of problems, one of which is the climate crisis. The climate crisis is a global problem caused by the emission of greenhouse gases, primarily carbon dioxide, into the atmosphere. These externalities are chiefly a consequence of day to day human activities, such as the burning of fossil fuels, deforestation, and conventional agriculture. The climate crisis is leading to rise in temperatures, sea levels, and more erratic weather patterns-The floods in Pakistan and depleting cedars of Lebanon are vivid instances for these phenomena, which are having a devastating impact on the planet.

One of the main reasons that free market capitalism has contributed to the climate crisis is that it prioritizes short-term economic growth over long-term environmental sustainability. Under capitalism, companies are primarily motivated by profit and are not required to internalize the costs of their pollution. This means that they are able to pollute without having to pay for the damage that they are causing. Additionally, the capitalist system is based on the idea of unlimited growth, which is not sustainable in the long-term. As long as there is an infinite demand for goods and services, companies will continue to produce them, leading to ever-increasing levels of pollution and resource depletion.

Another pressing issue that free market capitalism is recently going through is that it does not take into account the externalities of economic activities. Externalities are the unintended consequences of economic activities, such as pollution and climate change. Under capitalism, companies are not required to pay for the externalities of their activities, which means that they are able to continue polluting without having to pay for the damage that they are causing. In her book “This Changes Everything: Capitalism vs Climate” Naomi Klein argues that the current system of capitalism is inherently incompatible with the urgent action needed to address the Climate crisis.

To address the climate crisis, it is necessary to put checks and balances over the free market capitalism and/or make a way towards a more sustainable economic system. This can be done through a number of different effective policies, such as:

Carbon pricing: This can be done through a carbon tax or a cap-and-trade system, which would make companies pay for the carbon emissions that they are producing. In the article “The Conservative Case for Carbon Dividends” authors suggest that revenue-neutral carbon tax is the most efficient and effective way to reduce the carbon emissions.

Increasing renewable energy investments: an increment in the investments in clean energy technologies, such as solar and wind power, can result in the reduction in  the use of fossil fuels.

Regulating pollution: Governments can regulate pollution to limit the amount of greenhouse gases that are emitted into the atmosphere.

Encouraging sustainable practices: Governments can encourage sustainable practices, such as recycling and conservation, to reduce the use of resources.

It is remarkable that evolving Capitalism can be harnessed to address the climate change. The private sector has the resources and innovation to develop and implement new technologies and sustainable practices, but they need the right incentives and regulations to do so. Finding the balance between economic growth and environmental protection must be a priority for capitalists.

The free market capitalism has been the driving force behind global economic growth, but at the same time, it has contributed to the ongoing climate crisis. The solution to this problem is not to reject capitalism, but rather to reform it to the societies’ suitable demands. Government should consider providing a level playing field so as to make the probable transition from fossil-based energy systems to Green energy technologies possible. The capitalists should not consider short-termism over long term environmental sustainability. Government intervention to put a price on carbon emissions, invest in renewable energy, regulate pollution, and encourage sustainable practices is necessary to avoid the worst impacts of the climate crisis and build a sustainable future for all. However, here is the catch:  Is achieving net-zero-carbon emissions by mid-century a probable target? The answer is quite uncertain, however it is critical point to strive for in the face of  escalating Climate Crisis.

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Egypt’s “Too Big to Fail” Theory Once Again at Test



Authors: Reem Mansour & Mohamed A. Fouad

In the wake of 2022 FED’s hawkish monetary policy, the Arab world’s most populous nation, Egypt, saw an exodus of about USD20bn of foreign capital.  A feat that exerted pressure on the value of its pound against the dollar slashing it by almost half.  This led to USD12bn trade backlog accumulating in Egypt’s ports by December 2022.

Meanwhile, amidst foreign debt nearing USD170bn, inflation soaring to double digits, and a chronic balance of payment deficit, Egypt became structurally unfit to sustain global shocks; the country saw its foreign debt mounting to 35% of GDP, causing the financing gap to hover at USD20billion. 

While it may seem all gloom and doom, friends from the GCC rushed to inject funds in the “too big to fail” country, sparing it, an arguably, ill-fate that was well reflected in its Eurobond yields spreads and credit default swaps, a measure that assesses a sovereign default risk. 

For the same reason in early 2023, the IMF sealed a deal worth of USD3bn, with the government, which unlocked an extra USD14bn sources of financing from multilateral institutions, and GCC sovereign funds, to fill in a hefty portion of the annual foreign exchange gap, albeit  a considerable amount averaging USD6bn per annum is yet to be sourced from portfolio investments.  

With the IMF stepping in, the Egyptian government agreed on a structural reform program that requires a flexible exchange rate regime, where the Egyptian pound is set to trade within daily boundaries against the US dollar, rationalize government spending, especially in projects that require foreign currency; and most importantly the program entails stake-sales in publicly owned assets, paving the way for the private sector to play a bigger role in the economy.

In due course, through its sovereign fund, Egypt planned initial offerings for shares in companies worth about USD5-USD6bn, and expanded the sale of its shares in local banks and government holdings to Gulf investment funds. 

Through the limited period of execution of these reforms, the EGP hit a high of 32 against the greenback, and an inflow of portfolio investments amounting to USD1bn took place, according to the Central Bank of Egypt. 

Simultaneously, Citibank International, cited a possible near end of the devaluation of the Egyptian pound against the US dollar.  Also, in a report to investors, Standard Chartered recommended to buy Egyptian treasury bills, and pointed to the return of portfolio flows to the local debt market in the early days of January, 2023. Likewise, Fitch indicated the ability of the Egyptian banking sector to face the repercussions of the depreciation of the pound, and that the compulsory reserve ratios within Egyptian banks are able to withstand any declines in the value of the pound because they are supported by healthy internal flows of capital.

While things seem to be poised for a recovery, the long term prospects may lack sustainability.  The Egyptian government needs to accelerate its plans to shift gears towards a real operational economy capable of withstanding shocks and dealing with any global challenges. Egypt, however has implicitly held the narrative that the country is ‘too big to fail”. This is largely true to the country’s geopolitical relevance, but even this has its limitations when the price to bail far outweighs the price to fail.

Former President George W. Bush’s administration popularized the “too big to fail” (TBTF) doctrine notably during the 2008 financial crisis. The Bush administration often used the term to describe why it stepped in to bail out some financial companies to avert worldwide economic collapse.

In his book “The Myth of Too Big To Fail” Imad Moosa presented arguments against using public fund to bail out failing financial institutions. He ultimately argued that a failing financial institution should be allowed to fail without fearing an apocalyptic outcome. For countries, the TBTF theory comes under considerable challenge.

In August 1982, Mexico was not able to service its external debt obligations, marking the start of the debt crisis. After years of accumulating external debt, rising world interest rates, the worldwide recession and sudden devaluations of the peso caused the external debt bill to rise sharply, which ultimately caused a default. 

After six years of economic reform in Russia, privatization and macroeconomic stabilization had experienced some limited success. Yet in August 1998, after recording its first year of positive economic growth since the fall of the Soviet Union, Russia was forced to default on its sovereign debt, devalue the ruble, and declare a suspension of payments by commercial banks to foreign creditors.

In Egypt, although the country remains to face a number of challenges, signs remain relatively less worrying than 2022, as global sentiment suggests that leverage will be provided in the short-term at least. Egypt’s diversified economy, size and relative regional clout may very well spare the country the fate of Lebanon. However, if reforms do not happen fast enough, the TBTF shield may become completely depleted.

Hence, in order to avoid an economic fallout scenario a full fledged support to the private sector’s local manufacturing activity and tourism is a must.  Effective policies geared towards competitiveness are mandatory, and tax & export oriented concessions are required to unleash the private sector’s maximum potential and shift Egypt into gear.

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Sanctions and the Confiscation of Russian Property. The First Experience

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After the start of the special military operation in Ukraine, Western countries froze the assets of the Russian public and private sector entities which had been hit by blocking financial sanctions. At the same time, the possibility that these assets could be confiscated and liquidated so that the funds could be transferred to Ukraine was discussed. So far, only Canada has such a legal mechanism. It will also be the first country to implement the idea of confiscation in practice. How does the new mechanism work, what is the essence of the first confiscation, and what consequences can we expect from the new practice in the future?

Loss of control over assets in countries that impose sanctions against certain individuals has long been a common phenomenon. The mechanism of blocking sanctions has been widely used for several decades by US authorities. A similar methodology has been adopted by the EU, Switzerland, Canada, Australia, New Zealand, Japan and some other countries. Russia and China may also resort to these tactics, although Moscow and Beijing rarely use them. In the hands of Western countries, blocking sanctions, however, have become a frequent occurrence. Along with the ban on financial transactions with individuals and legal entities named in the lists of blocked persons, such sanctions also imply the freezing of the assets of persons in the jurisdiction of the initiating countries. In other words, having fallen under blocking sanctions, a person or organisation loses the ability to use their bank accounts, real estate and any other property. Since February 2022, Western countries have blocked more than 1,500 Russian individuals in this way. If you add subsidiary structures to them, their number will be even greater. The volume of the property of these persons frozen abroad is colossal. It includes at least 300 billion dollars in gold and foreign exchange reserves.

This is not counting the assets of high net worth Russian individuals worth $30 billion or more which have been blocked by the G7 countries. However, the freezing of property does not mean its confiscation. Although the blocked person cannot dispose of his assets, it formally remains his property. At some point, the sanctions may be lifted, and access to property restored. In practice, restrictive measures can be in place for years, but theoretically, the possibility of recovering assets still remains.

After the start of the special military operation (SMO), calls began to be heard in Western countries to confiscate frozen property and transfer it to Ukraine. Confiscation mechanisms have existed before. For example, property could be confiscated by a court order as part of the criminal prosecution of violators of the sanctions legislation. However, such mechanisms are clearly not suitable for the mass confiscation of property. Blocking sanctions are a political decision that do not require the level of proof of guilt that is required in the criminal process. To put it bluntly, the hundreds of Russian officials or entrepreneurs put on blocking lists for supporting the SMO did not commit criminal offenses for which their property could be subject to confiscation. The sanctions have spurred the search for such crimes in the form of money laundering or other illegal operations. But the amount of funds raised in this way would be a tiny fraction of the value of the frozen assets. To implement the idea of confiscation of the frozen assets of sanctioned persons and the subsequent transfer of the proceeds for them, Ukraine needed a different mechanism.

Canada was the first country to implement such a mechanism. The 2022 revision of the Special Economic Measures Act gives Canadian authorities the executive power to order the seizure of property located in Canada which is owned by a foreign government or any person or entity from that country, as well as any citizen of the given country who is not a resident of Canada (article 4 (1)). The reason for the application of such measures may be “a gross violation of international peace and security, which has caused or may cause a serious international crisis” (Article 4 (1.1.)). The final decision on confiscation must be made by a judge, to whom a relevant representative of the executive branch sends a corresponding petition (Article 5.3). Furthermore, the executive authorities, at their own discretion, may decide to transfer the proceeds from the confiscated property in favour of a foreign state that has suffered as a result of actions to violate peace and security, in favour of restoring peace and security, as well as in favour of victims of violations of peace and security, or victims of violations of human rights law or anti-corruption laws (art. 5.6).

The first target of the new legal mechanism will be the Canadian asset of Roman Abramovich’s Granite Capital Holding Ltd. The value of the asset, according to a statement by Canadian authorities, is $26 million.

Roman Abramovich is on the Canadian Blocked List, i. e. his property is already frozen, and transactions are prohibited. Now the property of the Russian businessman will be confiscated and, with a high degree of probability, ownership will be transferred to Ukraine. This is a relatively small asset (from the standpoint of state property), but the procedure itself can be worked out. Further confiscations may be more extensive.

The Canadian experience can be copied by other Western countries. In the US, work on such a mechanism was announced back in April 2022. although it has not yet been adopted at the legislative level. In the EU, such a mechanism is also not finally fixed in the regulatory legal acts of the Union, although Art. 15 of Regulation 269/2014 obliges Member States to develop, inter alia, rules on the confiscation of assets obtained as a result of violations of the sanctions regime. The very concept of violations can be interpreted broadly. So, for example, Art. 9 of the said Regulation obliges blocked Russian persons to report to the authorities of the EU countries within six weeks after blocking about their assets. Violation of this requirement can be regarded as a circumvention of blocking sanctions.

There are several consequences of the Canadian authorities’ initiative.

First, it becomes clear that the confiscation rule is not dormant. Its use is possible and is a risk. This is a serious signal to those Russians and Russian companies that have not yet come under sanctions, but own property in the West. It can be not only frozen, but also confiscated. This risk will inevitably be taken into account by investors and owners from other countries, which could potentially be the target of increased Western sanctions in the future. Among them are China, Saudi Arabia, Turkey, and others. It is unlikely that the confiscation of Russian property will lead to an outflow of assets of these countries and their citizens from Canada and other Western jurisdictions. But the signal itself will be taken into account.

Second, the Russian side is very likely to take retaliatory measures. Western companies are rapidly withdrawing their assets from Russia. The representation of Canadian business in the Russian Federation was small even before the start of the operation in Ukraine. If the practice of confiscation becomes widespread, then the Russian side can roll it out in relation against the remaining Western businesses. However, so far, Moscow has been extremely hesitant to freeze Western property. While the US, EU and other Western countries have actively blocked Russians and their assets, Russia has mainly responded with visa sanctions. The confiscation could overwhelm Moscow’s patience and make the retaliatory practice more proportionate.

Finally, the practice of confiscation modifies the very Western idea of sanctions. It currently implies, among other things, that the “behavioural change” of sanctioned persons would result in the lifting of sanctions and the return of property. The freezing mechanism was combined with this idea. However, the confiscation mechanism contradicts it. Sanctions now become exclusively a mechanism for causing damage.

From our partner RIAC

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