Context

In 2022, Moscow severed its economic ties with Europe and shifted its focus toward Asian countries. This shift unraveled the neoliberal interdependence that had connected Russia and Europe, resulting in repercussions for the global economy. The necessity for such a pivot had been emphasized since the financial crisis of 2007-08, though it was postponed indefinitely.

Overview

• For Russian political leaders, the reasons for this shift were clear. The country's economy was deeply integrated with Western markets and financial systems, making it vulnerable to external shocks stemming from political and ideological conflicts.
• Today’s geopolitical maneuvers carry implications for both eastern and southern regions. While Russia's $240 billion trade relationship with China is significant, the strengthening of ties between India and Russia has emerged as a crucial development. Despite lacking common borders and established logistical routes, these two countries have managed to develop trade relations almost entirely from the ground up. India's previously unexplored market has sparked discussions about the need to reshape the economic foundations of their cooperation.

The factors that mattered

• For Russia, political motivations were essential for strengthening commercial ties. India's stance of non-involvement in the European conflict provided a stable backdrop for policy planning. Conversely, India’s political engagement was largely driven by economic interests, as its foreign policy is influenced by internal dynamics.
• These differing positions have led to a convergence and a shift toward more pragmatic cooperation.
  • While India avoids making political commitments, it continues to import Russian oil, which not only saves costs but also allows for re-exporting it to Europe as refined products.
  • Additionally, importing fertilizers and sunflower oil from Russia has helped mitigate food inflation during climate disruptions.
• In just three months following the Ukraine conflict, the two nations achieved what had eluded them for decades.
  • Russia became India’s fourth-largest trading partner, with bilateral trade exceeding $3.5 billion in June 2022 and reaching $7.5 billion by May 2024.
  • When including unofficial trade, this figure could be even higher, surpassing the total trade volume of 2021 within a month.
• The July meeting between Indian Prime Minister Narendra Modi and Russian President Vladimir Putin resulted in a commitment to establish a bilateral trade target of $100 billion by 2030. However, given the limited capacity of the Russian market, challenges in accessing foreign technologies, underdeveloped logistics, and sanctions, reaching this goal will necessitate significant political efforts.

Several challenges

• First, there's a lack of economic complementarity, as both countries are focused on enhancing their own industrial capabilities—Russia with its technological nationalism and India with its "Make in India" initiative.
• Second, the sanctions regime restricts opportunities to address trade imbalances.
  • Small and medium enterprises could significantly boost bilateral trade and investment, but the absence of a stable payment mechanism, an investment protection agreement, a clear arbitration system, and a unified logistics operator complicates matters.
  • Improving the presence of Russian banks in India and integrating national payment systems could help mitigate the impact of sanctions.
• Third, technology and investment collaboration, once a cornerstone of India-Soviet relations, has diminished since the USSR's collapse.
  • Beyond nuclear and military sectors, there are few substantial investment projects or significant research initiatives.
  • Today's technology cooperation needs to be more business-focused, particularly in construction and modernization of factories, power plants, refineries, and mines in India.
• Lastly, cooperation in science and education is progressing slowly. Efforts should target STEM and social science projects to bridge the existing information gap between the two nations.

The Outlook

• The Ukrainian crisis has spurred Russia's shift toward India, but it also constrains the potential for deeper bilateral engagement.
  • India is facing external pressures, while Russia is focusing its financial resources on stabilizing its economy.
  • These factors have led to skepticism regarding the durability of the current warming in relations.
• In the medium term, the burgeoning military sector could play a role in enhancing ties.
  • Russian industries might increase their market share in India due to the competitive pricing of their products.
  • Additionally, there is potential for some Russian production capacity to transition from military to civilian applications, which could stimulate interest in engineering sectors.
  • India could benefit from imports of agricultural and construction machinery, railway trains, and medical equipment.
  • Meanwhile, India could supply Russia with products that are harder to access, such as smartphones and digital processing units, which have become key exports.
• However, a significant challenge remains regarding the quality of trade.
  • India’s exports lack engineering products, and the smartphones sent to Russia are often assembled by foreign companies rather than being locally produced.
  • To establish a more stable partnership, India and Russia should explore ways to enhance integration within their bilateral production chains and address localization issues.

Conclusion

Russia and India’s evolving relationship offers opportunities amid challenges stemming from Russia's pivot to Asia. While both nations seek deeper trade ties, issues like economic complementarity and sanctions persist. Their success relies on enhancing bilateral production, improving trade quality, and fostering pragmatic cooperation in a dynamic global environment.

Source: The Hindu