India’s Increasing Connectivity With Central Asia, Iran and Russia

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Op/Ed by Chris Devonshire-Ellis

Indian Prime Minister Modi Looks To Re-Connect India At Far Eastern Economic Forum

India’s historic connections with Central Asia have long been curtailed since the 1947 partition of Pakistan, in addition to the constant wars on-going in Afghanistan effectively removing New Delhi from meaningful border connections between the regions. Prior to partition, the country had long borders with Afghanistan, Tajikistan, Turkmenistan, and Uzbekistan, in addition to Iran to the West. In the past, all these countries have contributed significantly to India’s current cultural make up and status; losing these direct connections has tended to isolate the country away from its own heritage and inter-connectivity –  an unforeseen consequence of poor planning at the time.

Yet with Indian Prime Minister Modi about to address the Far Eastern Economic Forum in Vladivostok tomorrow, there are signs that India is finally shaking off its isolation and attempting to rebuild its regional relations. This is not an easy task. In 1947, India was effectively pushed south-east as a result of partition, and its borders cut to the region.

However, despite these connectivity issues, trade with Central Asia and Russia has been increasing. We can look at this as follows:

Afghanistan

Trade volumes are currently running at about US$900 million per annum, although Pakistan has been interfering with this, closing the Wagah border by insisting India’s bilateral trade with Afghanistan was a “trilateral matter”. However, India has begun servicing the market by opening up air cargo routes with Kabul, with trade expected to double to US$2 billion by the end of next year. Kabul-Delhi and Kabul-Mumbai routes have both been established. The economic advisor to President Ashraf Ghani of Afghanistan, Ajmal Ahmadi said that “Afghanistan still considers India as the largest market for agriculture and craft products.

In the last three years, Kabul exported about 10,200 metric tonnes in volume to India. Last year, it went up to 2,500 metric tonnes and this year we expect it to reach 5,000 metric tonnes.” Afghanistan has opened up its power, pharmaceutical, optical cable manufacturing, and other sectors by allowing 100 per cent foreign direct investment where it is looking forward to significant participation from Indian firms. Afghanistan is going to make changes in existing rules for mineral sector in the country, which will boost the bilateral trade with India. The Indian Ambassador to Afghanistan, Sahida Mohammed Abdali said that Indian and Afghanistan companies had last year signed business agreements worth US$250 million during 2018. An Indian Government Briefing can be viewed here while an update from the Indian Embassy in Kabul can be viewed here

Tajikistan

India-Tajik relations are also on the up with a great deal of emphasis placed on developing stronger diplomatic and trade ties (See an Indian Government bilateral brief here). However, trade remains somewhat low, running at about US$75 million per annum and hampered by a lack of access.

Should Delhi be able to replicate the success of the Afghani air cargo routes then this could change significanty. Tajikistan imports India’s pharmaceutical products, while India imports from Tajikistan include cotton, aluminum, and other minerals. Indian contractors are also in the process of building Dushanbe’s new ring road, an eight-lane highway expected to be completed in 2023. A briefing from the Tajik Embassy in Delhi can be viewed here

Turkmenistan

Indian relations with Turkmenistan also follow the same upward path, with bilateral trade now running at US$82 million, again a relatively low amount but marginally up on 2017-18 (See an Indian Government bilateral brief here). Turkmen Airlines operates services to Delhi and Amritsar. Products imported from India include electronic goods, machinery. and pharmaceuticals, while India imports rawhides, chemicals, cotton, grains, and other agriculture.

There is also co-operation with Indian companies in the oil and gas sector, mainly along the TAPI (Turkmenistan–Afghanistan–Pakistan– India) 1,800 km gas pipeline project that extends from the Caspian into India. A briefing from the Indian Embassy in Ashgabat can be viewed here

Uzbekistan

India also has good relations with Uzbekistan, although bilateral trade dipped in the last fiscal year to US$284 million, down from US$323 million (See an Indian Government bilateral brief here). Of this trade, Indian exports to Uzbekistan make up about 90 percent of the total and include pharmaceuticals, machinery, and electronics. Uzbek exports include mainly agricultural and fruit based products. Again, connectivity issues remain a hindrance. A briefing from the Indian Embassy in Tashkent can be viewed here

Iran

While many countries trade relations with Iran revolve  around oil and gas, India has another unique aspect to this – connectivity. The 1947 partition deleted India’s centuries-old border with Iran, cutting it off from Persia and access to Europe. The trade between India and Iran mostly comprise of oil and gas products and runs at about US$14 billion per annum. Tehran and Delhi are committed to doubling this despite the threat of US sanctions – an issue that is pushing Delhi more towards Moscow than Washington. But India also sees Iran as an important connectivity route – the International North-South Transport Corridor connects Mumbai to the Iranian Port of Chabahar. This is a hugely valuable strategic route in three ways: it reconnects India with Afghanistan to the east; drives through to the Caspian Sea and onto Russia heading north; and, provides access to markets to Turkey and Europe heading west.

India, Iran, and Afghanistan have signed an agreement to give Indian goods, heading toward Central Asia and Afghanistan, preferential treatment and tariff reductions at Chabahar. From the geographical perspective, Chabahar provides India with an easier land-sea route to Afghanistan. The Indian government has committed US$500 million to the entire Chabahar project, with an aim to join an increasingly important transport corridor to resource-rich regional countries. For this reason India-Iranian relations are significant and can over time be expected to make further impact on Delhi’s desire to reconnect with Central Asia and Russia.

Russia

India and Russia have made no secret of their desire to develop bilateral ties. The two countries aim to increase bilateral trade volumes to US$30 billion by 2024. There are some natural alignments; both are looking to develop new trade ties, while India is in the market for military hardware.

The two countries are collaborating on developing commercial airliners, while traditional Indian industries such as jewelry are finding new opportunities in gemstones – Siberia produces the world’s largest amount of diamonds, and Indian investors are present at the Eurasian Diamond Exchange in Vladivostok as well as Siberian gold mines. India has also been among the first customers for Siberian LNG gas shipped in from the Arctic.

The Indian companies intend to increase the supply of Russian LNG, and in particular, they are interested in buying gas from future Novatek projects – Arctic LNG-2 and Arctic LNG-3, Russia’s Minister of Energy Alexander Novak told TASS commenting on the results of meetings this week with the Indian Minister of Petroleum and Natural Gas- Dharmendra Pradhan.

According to Novak, Russia is steadily increasing its export of energy resources to India. For the first six months of this year, Russian supply of petroleum products to India increased by 17.6 percent and amounted to 1.36 million tonnes, while coal exports increased by 25 percent – up to 3.05 million tonnes.

India and Russia are also to be connected via the International North-South Transport Corridor running from Chabahar Port in Iran through Azerbaijan and onto Russia. This is a work in progress. However, with all three – India, Iran, and Russia committed to it, the countries will soon see the development of trade through both the Eastern Corridor via Vladivostok and the Western one via Iran.

The Eurasian Economic Union

There is additional glue coming down the trade pipeline to link all this together. India is currently involved in negotiations with the Eurasian Economic Union (EAEU) concerning a Free Trade Agreement (FTA). The EAEU comprises Armenia, Belarus, Kazakhstan, Kyrgyzstan, and Russia, and effectively sits between the European Union and Western China.

China has a non-preferential FTA with the EAEU, meaning no products are identified within its scope at present, although this is understood to be under negotiation. Iran does have an FTA with the EAEU, and so do Vietnam and Serbia. Other countries, such as Singapore, Thailand, Turkey, and Egypt are also currently in the process of discussing an FTA with the bloc. Should the agreement come into effect, India will find itself trade-aligned more closely with Central Asia.

EAEU-2019

The Shanghai Cooperation Organization

India is also a full member of the Shanghai Cooperation Organisation (SCO). The SCO comprises China, Kazakhstan, Kyrgyzstan, Russia, Tajikistan, Uzbekistan as well as Pakistan, Afghanistan, Iran, and Mongolia as participating observers, Turkmenistan as a guest, and Turkey as a dialogue partner. The bloc is a multilateral grouping, established to secure the region, deal with terrorism, and discuss trade and development. India and Pakistan were admitted to the bloc in 2017.

In 1947, India’s relations with Central Asia were badly affected after partition. However, although trade ties remain relatively small, they are now on an upward trend, with many of the countries concerned also wanting to have some leverage over China and its belt & road ambitions. Allowing India access to markets and investment is one way to accomplish this balancing act, and especially with Russia on board as well. This means that over time, India’s trade and development influence in the region will increase, partly as a counterweight to the Belt & Road Initiative, but also partly to join up with certain aspects on that, in addition to developing India out of its current China-Pakistan surrounded box. India-Central Asian and Russia trade volumes may just be beginning.  There is plenty of room for growth – and with that, opportunities.

A version of this article was originally published on September 3, 2019 by Silk Road Briefing and was republished by India Briefing on September 10, 2019.


About Us 

India Briefing is written by Dezan Shira & Associates. The practice has offices in Delhi, Mumbai and Chennai in India as well as in Russia and can assist foreign investors in each. Please contact us at india@dezshira.com for assistance or visit us at www.dezshira.com.     

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