India today is the fastest-growing economy in the world, with a strong outlook of 7-8 per cent growth rates for the coming decade. Russia, despite having become the most sanctioned economy in the world, has shown uncommon resilience and returned to positive GDP growth.
Bilateral relations between India and Russia have stood the test of time, enjoying widespread popularity and political support in both countries. Despite the current international turbulence and changing geostrategic landscape, the earlier geopolitical logic of a strong Russia being in India’s interest and vice versa endures.
There is also strong convergence of opinions regarding global and regional affairs, including a shared perspective on multipolarity serving as the basis for international order. Ironically, the current geoeconomic necessities posed by massive Western sanctions on Russia have given unexpected impetus to the economic pillar of the relationship. Targets for both bilateral trade and bilateral investment have had to be revised in recent years. As international supply-chains reorient and restructure, there is a need to recognize the dynamism and opportunities inherent in both the Indian and Russian economies. India today is the fastest-growing economy in the world, with a strong outlook of 7-8 per cent growth rates for the coming decade. India is emerging as a major exporter of certain sectoral goods that it had to import just several years ago, such as electronics, solar panels etc. Russia, despite having become the most sanctioned economy in the world, has shown uncommon resilience and returned to positive GDP growth.
Numerous institutionalized mechanisms have been set up by India and Russia to promote economic engagement and show that an expansive agenda of cooperation has already been identified. The primary dialogue at the apex level is the India Russia Intergovernmental Commission for Trade, Economic, Scientific & Cultural Cooperation (IRIGC-TEC). It is chaired by India’s external affairs minister and Russia’s deputy prime minister. There are 12 Working Groups (WG) and 5 Sub-Groups (SG) under IRIGC, namely the groups on Agriculture, Trade and Economic Cooperation, Priority Investments, Modernization and Industrial Cooperation, Energy & Energy efficiency, Tourism and Culture, Science and Technology, IT & Communication, Banking and Financial Matters, Pharmaceuticals, Transport and Urban Development. The sub-groups include Trade Barriers, Civil Aviation, Fertilizers, and Mining and Modernisation. Pursuant to the decision taken during the 19th Bilateral Summit in 2018, the India-Russia Strategic Economic Dialogue (IRSED) was established in order to enhance cooperation in the field of economic policy development. It is co-chaired by the vice chairman of NITI Aayog on the Indian side and Russia’s minister of economic development. There are six coordination committees under the IRSED in six areas– Transport, Agriculture, Digital transformation, SMEs, Trade and Banking and Tourism. So far, 25 sessions of the IRIGC and 3 sessions of the IRSED meeting have taken place. There are also wide-ranging inter-regional dialogues on economic cooperation, with nine twinning agreements between the states of India and the regions of Russia.
Experts, corporate leaders, and policymakers from the two countries have vibrant exchanges and participate in dialogues organized by each other’s industry and business associations, such as St. Petersburg International Economic Forum, the Eastern Economic Forum, India-Russia Business Dialogue etc. After years of certain stagnation, India-Russia bilateral trade grew more than 2.5 times from year before to reach US$ 50 billion in 2022. This has once again brought renewed attention to the trade fundamentals of payments, connectivity, market access, facilitating B2B agreements, etc. It has become even more important now to undergird the growing trade trajectory from geopolitical headwinds. After the termination of an earlier rupee-ruble arrangement in 1992, in July 2022, the Reserve Bank of India (RBI) allowed for the opening of Special INR Vostro accounts from the banks of partner countries with authorized banks in India. This was largely in response to Western payment sanctions on Russia where Russian banks were disconnected from the SWIFT banking system. By July 2023, the RBI has approved 34 applications from different Russian banks for opening special rupee Vostro accounts in 14 Indian commercial lenders. Earlier in April 2023, India and Russia also agreed to explore the possibility of accepting each other's payment cards, RuPay (India) and Mir (Russia), for hassle-free payments between the two countries during the IRIGC-TEC meeting. The meeting also explored the possibility of interaction between India's Unified Payments Interface (UPI) and Russia’s Faster Payments System (FPS) which could further enhance the efficiency of cross-border payments.
Strengthening connectivity and having unhindered logistics have also become imperative for India-Russia trade growth. The International North-South Transport Corridor (INSTC) presents the shortest trade route between India and Russia, traversing 7,200 km via sea routes, rail links and road connections. INSTC, on the whole, also provides opportunities to develop regional supply chains and expand India’s economic footprint across Eurasia. Trial shipment runs between India and Russia have shown a reduction in transportation costs by roughly 30 per cent, while reducing transit time by more than half in comparison to the Suez Canal route. In February 2020, an agreement was signed between Russian Railways (RZD) and Indian CONCOR to jointly develop multi-modal logistics services along the INSTC route. By reducing high shipping and freight costs, the INSTC can facilitate larger India-Russia EXIM trade in fertilizers, petrochemicals, agricultural products, grains, pharmaceuticals, textiles etc. Russia has also expressed support for India’s proposal to include Chabahar port within the framework of INSTC. India already has a Double Taxation Avoidance Agreement with Russia. In December 2023, during Indian EAM’ visit to Moscow, it was decided to resume talks for the Eurasian Economic Union-India Free Trade Agreement from January 2024. To streamline and fast-track the process of Customs clearances of cargoes, India and Russia have also decided to replace the discussions on the ‘Green Corridor Project’ with an Agreement on Mutual Recognition of Authorized Economic Operators (AEO) and a MoU on the Exchange of pre-arrival Customs data.
Another major connectivity initiative has been the proposal to revive the Vladivostok-Chennai Maritime Corridor that operated for a short period during the Soviet Era in the late 1960s. The average round voyage time then was 90 days. Today, the same route offers potential roundtrip shipment time of 24 days. The bulk of Indian investment in Russia is in the hydrocarbon sector, thus efficient maritime shipping has assumed priority. Although the crude oil refining capacity on India’s eastern coast remains limited (similar issues exist with the number of LNG terminals on the eastern side), the distance from Vladivostok to India’s west coast is still shorter than a trip from St. Petersburg to Mumbai via the Suez Canal. While bringing energy supplies from Sakhalin and the Russian Far East to Chennai indeed takes a shorter time, the fact that eastern sections of the Northern Sea Route are only available for six months poses feasibility challenges in utilizing the corridor in case of imports from the Russian Arctic to India. Indian presence and investment in the Russian Far East (RFE) received a boost with Prime Minister Modi’s announcement of the Act Far East policy in 2019, including a US$1 billion credit line to consolidate strategic and commercial relations with Russia. Currently, there are also negotiations ongoing on a wider Bilateral Investment Treaty. Indian investment in Russia today stands at roughly US$ 13 billion (much in the hydrocarbon sector) and Russian investment in India is at US$17 billion (a major chunk of it has been Rosneft’s acquisition of Essar).
Energy cooperation between India and Russia remains the driver of their strengthening economic relationship. Mineral fuels have formed the largest share of the trade basket with, nearly US$ 39 billion worth of imports by India in FY 2022. Certain narratives have reduced the expanded crude oil trade to discounts offered by Russia, but overlook the strategic comfort of India in shifting the sourcing of one of its largest import dependencies to Russia. India is the third largest importer of crude oil in the world, importing 85 per cent of its requirements. Cooperative projects on nuclear power and peace in outer space also indicates the strategic nature of India-Russia economic engagement. Technically, Russia is the only foreign country involved in India’s nuclear power sector. Two Russian collaboration 1,000 MW nuckear plants in Kudankulam, Tamil Nadu are already on full steam. An ambitious programme of ten more units to deliver an additional 1,1200 MW of nuclear power is under implementation. This is most significant as India seeks to become carbon neutral by 2070. India-Russia space cooperation dates back around four decades and today focuses on human spaceflight programs, satellite navigation systems, the development of launch vehicles, the use of outer space for peaceful purposes, etc.
Other sectors, such as green energy (including renewable and hydrogen), steel, shipbuilding, ports, railways, electronics, banking and insurance, joint manufacturing, etc. offer tremendous potential and a convergence in interests. The large rupee surplus accrued by Russia can be invested in India’s thriving capital markets but also in joint projects in any of the above sectors. Pharmaceuticals continue to be among India’s main exports to Russia, especially after Western sanctions. Russian drug makers increasingly look towards the Indian pharma industry for supplies in areas such as anti-diabetic drugs, anti-cancer drugs, auto-immune drugs, anti-retroviral drugs, cardiovascular drugs, and medical instruments. With the dominance of the state sector in both India and Russia, private sector innovation, especially to deliver on new technologies of artificial intelligence, quantum processing, semiconductors, and new communication technologies remain constrained. Joint platforms to engage start-ups and SMEs could be productive for both countries in that respect. There is also potential to increase India’s presence in Russian imports in agriculture, auto components and clothing, which are India’s strong suits. The elimination of barriers by way of closing critical gaps in phytosanitary and veterinary requirements needs to be expedited and will boost bilateral trade in agricultural and agro-processed products.
There are strong complementarities between Indian and Russian economies. Being the most populous country in the world, India offers a young workforce and large domestic demand compared to Russia which faces demographic challenges. More avenues for people-to-people engagement through civil aviation, tourism, education, and popular culture need to be promoted. Even sporting tournaments involving more countries may aid in more understanding of Russia in India and India in Russia.
