India’s Opportunities from Closer Ties with Russia

February 13, 2017 Posted by India Briefing Reading Time: 5 minutes

Russia and India are becoming closer partners both politically and in trade. India is negotiating a Free Trade Agreement (FTA) with the Eurasian Economic Union (EAEU) and will become a full member of the Shanghai Co-Operation Organization (SCO).

The SCO provides a uniquely eastern and central Asian political and development platform for India. Founding members China, Kazakhstan, Kyrgyzstan, Russia, Tajikistan, and Uzbekistan will be joined by India, Iran, and Pakistan. Observer states include Afghanistan, Belarus, and Mongolia, while dialogue partners Armenia, Azerbaijan, Cambodia, Nepal, Sri Lanka, and Turkey also participate. As can be seen, many of these states are within India’s sphere of interest.

The EAEU, meanwhile, is a free trade area that includes Armenia, Belarus, Kazakhstan, Kyrgyzstan, and Russia. While that may seem a little esoteric when it comes to Indian trade interests, it should be noted that Vietnam already has an FTA with the EAEU, while other states – such a Moldova and Uzbekistan – are currently negotiating to join via their existing memberships in the Commonwealth of Independent States (CIS). China, Egypt, Iran, Singapore, South Korea, and Turkey have all commenced some level of negotiation to join, and if ratified, these agreements will make the EAEU a powerful trade body.

The question is what Indian businesses can expect from a closer trade relationship with Russia? To date, bilateral trade has focused on defense, with Russia giving India technologies and equipment that not many other countries will consider. The nuclear-powered attack submarine Chakra is an example; the Brahmos supersonic cruise missile another. Although military sales are primarily a government to government affair, the arms trade deals can be expected to filter down to a wider base of Indian businesses, particularly given the greater regional access permitted through the auspices of the SCO.

Trade and investment

Bilateral trade will benefit from the introduction of new mechanisms to promote private investments and businesses, in addition to the existing ones. Trade between Russia and India already benefits from several mechanisms that promote private investment. The two governments should also seek to encourage cooperation between entrepreneurs and medium-sized businesses. The Indian government already has a number of initiatives designed to support startups and SMEs, which the government could tailor further to complement bilateral agreements such as the Russia-India Innovation and Modernization Fund.

Energy

Both Russian and Indian companies have well proven engineering expertise, and a shared interest in energy. In the past, investments in joint nuclear power projects were discussed, but Indian and Russian officials have recently begun discussing collaboration in the oil sector, with energy security taking center stage. India heavily invested in Russian energy interests, but the two countries are now focusing on crude oil deals, while officials have also discussed an ambitious Russia to India pipeline.

Science and technology

The two governments could create a set of initiatives and a preferential environment for the exchange of practices, which will drive collaboration between mid-sized businesses in target sectors like information technology, pharmaceutical research, and nano and bio-technology. India’s Ministry of Science and Technology can also devise more robust forms of scientific cooperation with Russia, setting-up hubs for joint research and technology development.

Culture and education

The Indian government has expressed interest in opening higher education to foreign educational institutions. As the government explores these opportunities, it should consider the possibility of Russian higher-learning institutions in India. A first step could include identifying sponsors for Russian-language courses within Indian educational establishments, much like China does with its Confucius Institutes, which are often located within the campuses of universities around the world.

Russia looking to Asia

With Russia looking East to cement trade deals and supplies, this greater concentration of Russian minds on what India can provide is a call that can be taken up by Indian entrepreneurs.

Chris Devonshire-Ellis is the Founding Partner of Dezan Shira & Associates – a specialist foreign direct investment practice providing corporate establishment, business advisory, tax advisory and compliance, accounting, payroll, due diligence, and financial review services to multinationals investing in emerging Asia. Since its establishment in 1992, the firm has grown into one of Asia’s most versatile full-service consultancies with operational offices across India, China, Hong Kong, Singapore, and Vietnam, in addition to alliances in Indonesia, Malaysia, Philippines, Russia and Thailand, and liaison offices in Italy, Germany, and the United States. For assistance with corporate establishment and administration services in India, please email india@dezshira.com. For information about and assistance in Russia, visit www.russia-briefing.com, email russia@dezshira.com, or visit www.dezshira.com.

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