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India and Russia: Lacking economic dimensions

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Modi and Putin copy copy.tif India-Russia bilateral relations have been low key for a couple of years. The 20th meeting of the India-Russia Inter-Governmental Commission on Trade, Economic, Scientific, Technological and Cultural Cooperation (IRIGC-TEC) was co-chaired by foreign minister Sushma Swaraj and Russian Deputy Prime Minister Dmitry Rogozin.


The commission reviewed the progress on a broad spectrum of bilateral issues including trade, economic, scientific, technological and cultural cooperation and suggested actions for realizing the full potential of this important relationship.

 

Some of the important decisions of the Commission include: a joint study group for the proposed agreement between India and the Customs Union of Belarus, Kazakhstan and the Russian Federation for trade in goods and services; Enhancement of bilateral trade through the International North South Corridor Project (INSTC) by freight forwarders and exporters particularly to bolster trade in agriculture and food processing industry; Maintain the momentum of cooperation in some priority areas such as hydrocarbons, coking coal, fertilizers, mining, civil aviation, infrastructure and trade in rough diamonds. Another decision was for joint cooperation between Indian company National Mineral Development Corporation (NMDC) and the Russian company ACRON for development of potassium and magnesium deposits in Talitsky mine in Perm region of Russia and Partomchorr apatite-nepheline ore deposit (Murmansk region).

The defence ties between both sides are not doing well as the Indian defence procurement policy has undergone a sea change, with India emphasizing self-reliance and indigenization. If stagnating Indo-Russian bilateral trade has to beefed up, then the two sides have to diversify their trade basket. The Commission has rightly identified new priority areas such as hydrocarbons, coking coal, fertilizers, mining, civil aviation, infrastructure and trade in rough diamonds for achieving this objective. India has sought greater market access in Russia for its merchandise exports in sectors such as pharmaceutical, automobiles, textiles and value-added agri-products even as Moscow demanded strengthening of the Rupee-Rouble trade. Addressing the eighth India-Russia Forum on Trade and Investment, commerce and industry minister Nirmala Sitharaman pitched for enhanced market access for Indian goods in Russia and also invited Russian companies to increase their investments in India.

Positive Aspects:

  1. Now finally the two strategic partners have begun to adjust to new realities and deepen their bilateral cooperation in newer areas, in such non-defence areas as agriculture, food processing, hydrocarbons, coking coal, fertilizers, mining, civil aviation, infrastructure and rough diamonds.
  2. India and Russia have also identified three more areas for deepening their cooperation: smart cities, the Customs Union of Belarus, Kazakhstan and the Russian Federation for trade in goods and services and enhancement of bilateral trade through the International North South Corridor Project (INSTC).
  3. Indian companies will be able to participate in development and production of hydrocarbons in the Arctic and in East Siberia. Russia also has suggested involving India in Russian gas projects, including in the Sakhalin-1, where a second stage of an LNG plant will be built.
  4. Russia has offered a proposal to the Government of India to pick up 30% stake in the Acron, the Russian potash manufacturer, along with buyback agreement for exclusively supplying potash back to India.
  5. After it warmed up to China with a $400-billion gas deal, Russia is likely to have India as the next stop for expansion of its hydrocarbon market.
  6. If stagnating Indo-Russian bilateral trade has to beefed up, then the two sides have to diversify their trade basket. The Commission has rightly identified new priority areas such as hydrocarbons, coking coal, fertilizers, mining, civil aviation, infrastructure and trade in rough diamonds for achieving this objective.
  7. India and Russia have decided to renew the Cultural Exchange Programme for 2015-2018 and strengthen ties between their state-owned broadcasters. It was also decided to hold Festival of India in Russia in 2015 and strengthen links with Roerich International Memorial Trust in the village of Naggar in Kullu Valley.
  8. India oil refiners’ payments to Iran, which continue to be stymied by sanctions on Tehran despite interim leniency shown by the US and five other world powers to the Persian Gulf country, may finally get easier with Moscow agreeing to play intermediary. Russia, which recently signed an agreement with Iran for oil purchases from the West Asian country, would institute an oil swap mechanism with India that will mean that practically New Delhi will have to pay Russia for Iranian oil with Russia assuming the risk of routing the funds to Iran.

Limitations:

  1. Russian President Vladimir Putin is seeking to build military ties with Pakistan as India buys more weapons from the U.S., changing an approach toward the nuclear-powered neighbours that has endured since the Cold War. On 20th November, 2014, India’s tried and trusted friend, ally and strategic partner – signed a never-before defence cooperation agreement with Pakistan. The defence pact scripts a new history as Russia agreed to cooperate with Pakistan in combating terrorism and offered advanced counter-terrorism training to Pakistan.
  2. Russia’s ban followed the US-EU economic sanctions announced on the Ukraine issue. The previous year’s import of these items from America and 11 European countries were about $128 billion. India exported only $195 million of agri products to Russia in 2013-14. And, despite supplying 60 per cent of the world’s buffalo meat, India was absent from the Russian market.
  3. Bilateral trade between the two BRICS -member countries witnessed a  7.84 per cent decline in 2013-14 to $6 billion with India’s exports to Russia at $2.1 billion and Russia’s exports to India at $3.9 billion. The share of Russia in India’s imports declined by 0.87 per cent, which is not in tandem with the friendly historical bilateral relations and economic position of both countries, adding that the trade balance is in Russia’s favour due to import of energy supplies.

Potential:

  1. Russia is extremely rich in mineral deposits and boasts a significant share in the world’s raw materials production. It has iron ore reserves of around 56 billion tonnes.
  2. India is also planning to invest US$ 1 trillion in the infrastructure sector alone in the next five years. India aims to double its food processing capabilities in the next five years with the establishment of 64 fully equipped Agro Processing Zones and Food Parks. Russia “can be an invaluable partner to develop cross-sectoral linkages in the entire value addition chain from agriculture to retail, packaging and logistics.
  3. Russia’s retaliatory ban on import of meat, poultry and some other agricultural products from America and the European Union has opened an opportunity for India.
  4. Faced with economic sanctions by the Western world and a retaliatory ban on import of agricultural commodities from there, Russia has evinced interest in buying a large quantity of fruits and vegetables from India.
  5. Dairy products exports from India have jumped from Rs.289 crore in 2011-12 to Rs. 3,318 crore in 2013-14. At present, India has been exporting items such as grapes, cucumber, gherkins, fresh and processed vegetables and guar gum to Russia. The value of agricultural food product exports to Russia has increased from Rs 601 crore in 2011-12 to Rs. 1,174 crore in 2013-14.
  6. India is set to start negotiating with Russia the extension of a $30-billion gas pipeline Russia plans to build to China till the Indian border. If the proposed pipeline from Russia via China’s Xinjiang province materialises, it will be among the world’s most expensive gas pipelines.