India and Russia Looking to Triple Bilateral Trade to US$30 Billion by 2025

Posted by Reading Time: 6 minutes

Op/Ed by Chris Devonshire-Ellis  

  • Aiming to increase trade to US$30 billion in next four years 
  • Targets US$5 billion a year in new trade 
  • Priority discussions over India free trade withthe Eurasian Economic Union  
  • Use of the International North South Transport Corridor opens access to new markets
  • Opportunities for import-export for both Indian and Russian businesses 

India and Russia are aiming to achieve US$30 billion in annual bilateral trade by 2025, an increase on the US$10 billion traded in 2019. Roman Babushkin, the Deputy Ambassador for Russia in New Delhi stated yesterday: “The FTA between India and the Eurasian Economic Union is a priority project for all of us and we are moving towards the early conclusion of the agreement.” 

There is plenty of space for Russian-Indian trade to develop, with US$10 billion in bilateral trade being a drop in the ocean for two trillion dollar economies. Babushkin laid out areas of cooperation, saying that “Our Indian partners show growing engagement in the Russian Far East oil and gas, coking coal, diamonds, innovation, infrastructure, civil aviation, ship-building and other projects as well. Both countries are working to expand regional connectivity through the North-South Transport Corridor, Vladivostok-Chennai Maritime Sea Route, space, AI, information security partnership, the use of national currencies in international trade and interconnection of national payment systems.”  

Russia and India are also eyeing an early implementation of the spare parts joint production agreement, which also fits in with the Make In India and the Atmanirbhar Bharat program, a vision of Modi’s to make India “a bigger and more important part of the global economy, pursuing policies that are efficient, competitive and resilient, and self-sustaining.”   

There are a number of issues mentioned by the Russian Deputy Ambassador to India that are of great opportunity interest to both Russian and Indian businesses. We can explore these in more detail as follows:  

Indian free trade with the Eurasian Economic Union   

 

The Eurasian Economic Union (EAEU) comprises of Azerbaijan, Belarus, Kazakhstan, Kyrgyzstan, and Russia and has a population of about 182 million people and a GDP of US$1.9 trillion. Trade has been growing among member nations, and is currently about US$750 billion per annum. Successfully negotiating a deal with the EAEU means, according to the agreed terms, reductions or elimination on tariffs traded between India and each of these countries. It would open up considerable export opportunities for Russian businesses to India, as well as Indian businesses to Russia.   

The International North South Transport Corridor (INSTC)  

The INSTC opens up markets for India in Iran, and the EAEU member states of Azerbaijan, Kazakhstan, and Russia. Goods are shipped from Mumbai to the Iranian Port of Chabahar, which has been heavily invested in by India, and is a 3.5 day voyage. From Chabahar, they are loaded onto trucks via road, or rail, which runs directly north via Tehran to the Iranian Caspian Sea Port of Anzali. There is also an INSTC spur, which heads north-east into Afghanistan, offering Indian exporters far easier access to that market as it bypasses Pakistan. 

We have discussed the Anzali Port, with details of its facilities and trade incentives in our article The Anzali Free Trade Zone: Emerging Iran’s Gateway On The Caspian Sea

From Anzali, containers can be shipped onto Azerbaijan’s Baku Port, which links via the BTK rail network through to Turkey, Turkmenistan’s Turkmenbashi Port Kazakhstan’s Aktau Port and Russia’s new Lagan Port

The Vladivostok-Chennai Maritime Corridor  

 

I was fortunate to be present at last year’s Far Eastern Economic Forum, in Vladivostok, which Indian Prime Minister Modi also attended. It was at that event, while discussing gas supplies from Russia to India (LNG shipments from Siberia to India began in 2018) that Modi toured the Zvezda shipyard in Vladivostok, which builds advanced large-capacity ships and service vessels for work on the Arctic shelf as well as for shipping liquefied gas, oil products, and other cargo. He was impressed by the new shipping designs being developed to have vast container ships deal with the Arctic Northern Sea Passage. 

Modi is from Gujarat State in North-West India, which has its own shipyards. Naturally he wanted to know that if India was going to be a massive client for Russian energy, couldn’t it also jointly develop the new technology ships that will be required?  

Consequently, Indian shipbuilding companies are expected to be working with Russian counterparts in both Vladivostok and India to develop new classes of vessels for LNG shipping, including ice-breaker technologies. Russia’s oil company Rosneft owns one of India’s major oil refineries, as well as the Indian Port at Vadinar in Gujarat. It is likely that the LNG cooperation with Indian needs will include joint ship-building projects that can be carried out in both Vladivostok and Gujarat.  

Chennai, meanwhile, is en route, and provides access to the South-Eastern Indian seaboard. Consequently, while Vladivostok, Chennai, and Gujarat may seem, and are, literally oceans apart, India’s energy needs will ensure this corridor becomes a success. A large container ship travelling at the normal cruising speed of 20-25 knots, or 37-46 km/hour, should be able to cover the distance in 10-12 days. Support services as well as LNG distribution networks from Chennai all need to be put in place, offering great opportunities for Indian and other foreign investors.     

Rubles and rupees  

 

There has been growing resentment of the United States’ use of the US dollar, and its effective control of the global SWIFT banking network as effective trade and sanctions weapons. This has especially impacted Russia, as well as other countries such as China, Iran, and Turkey. Indian Prime Minister Modi is also well aware of the risk of trade sanctions as its own global market share starts to increase, and in some areas, compete with the US. Both countries, including China, are members of the BRICS group of nations. All recognize that it makes no sense to settle bilateral trade in US dollars and go through US intermediary banks and be charged a commission. This is why settlement in each others’ respective currencies rather than in dollars is on the agenda. But there is more, and especially the digitization of money. Russia is discussing the introduction of a Digital Ruble, while the BRICS grouping have discussed introducing a BRICS cryptocurrrency and an independent, cloud based banking network. Use of their respective currencies rather than the US dollar in bilateral trade will make both countries’ banking and financial services easier, and with new technologies coming in make life easier for merchants and traders.     

What can Indian businesses sell to Russia?  

Indian exports to Russia are on an upward trend, a situation that will further, and sharply increase should an EAEU FTA materialize. If so, this is good news for Indian producers of generic medicines, tea, canned vegetables, grapes and raisins, rice, coffee and coffee extracts, and related consumables, such as spices, herbs, and essences. 

What can Russian businesses sell to India? 

Exports of beans to feed Indian consumers have grown to US$14.5 million from just US$2 million in the past two years, while sales of sunflower seeds and other oil-producing crops have also increased. Russian radar equipment as well as compasses and other navigational products also became important exports to India, while areas of growth include uncut diamonds, silver, mineral and chemical fertilizers, crude and petrochemicals, as well as machinery, synthetic rubber, polymers, plastic products, paper and other products. 

We also discussed the India-Russia Trade potential in the article India-Russia Business Ties Are Developing In Energy, Shipping, Agriculture And Jewelry. 

Clearly, there is much room for growth and opportunities for entrepreneurs on both sides to look at their respective markets. Our firm, Dezan Shira & Associates, assists foreign investors with local market intelligence, followed up by providing legal assistance in setting up trading companies, advising on the tax planning and related issues, and all other aspects covering foreign trade and investment. We also have offices in India and Russia. Please contact us at asia@dezshira.com for assistance or visit us at www.dezshira.com 

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India Briefing is produced by Dezan Shira & Associates. The firm assists foreign investors throughout Asia from offices across the world, including in Delhi and Mumbai. Readers may write to india@dezshira.com for business support in India.