On November 16, 2017, the Valdai Discussion Club together with the World Bank held an expert discussion on the impact of structural changes in the economies of China and India on the Russian economy. The discussion was inspired by the World Bank report titled “A Rebalancing China and Resurging India: How Will The Pendulum Swing For Russia?”
According to the study, there is a rapid growth in the Indian economy and a change of the economic model in China, which consists in the transition from production to increase in domestic consumption. On the one hand, dynamic changes in the economies of China and India open up new opportunities for Russia, and on the other, they create problems. Opportunities mainly arise from the rebalancing of demand in China, as well as the emergence of India as one of the fastest growing economies in the world. The problems are mainly due to the slowdown in the Chinese economy (which reduces the demand for Russian exports), the low intensity of trade between Russia and India (compared to trade flows between Russia and China), as well as the currently inadequate structures of bilateral trade flows between Russia and China and between Russia and India.
For the changes in the economies of India and China to have a positive impact on the Russian economy, the authors of the report recommend to accelerate the pace of structural reforms in Russia, diversify exports and, especially, reduce dependence on natural resources, increase the attractiveness of the Russian economy for investors, and reduce non-tariff barriers that can limit the country’s ability to adapt quickly to changes in the world economy. Otherwise, Russia will face negative consequences of changes in the economies of India and China, which will primarily affect the social sphere.
According to Apurva Sanghi, World Bank Lead Economist for the Russian Federation, the report’s value lies in the fact that it gives one more incentive for accelerating structural reforms in the Russian economy.
Alexander Morozov, Director of Research and Forecasting Department at the Bank of Russia, said that the report does indeed represent a holistic approach to the analysis of various factors and offers a long-term strategy for a likely future. Russia needs to find tools to accelerate economic growth, in particular to increase the mobility of the labor market and capital. These measures should result in the diversification of exports, as well as the decline of prices in Russia, or at least a slowdown of their growth rates.
Participants in the discussion agreed with the importance and timeliness of the study and also with the fact that despite Russia’s turn to the East, the potential for untapped economic cooperation in the region is huge. Moreover, Russia, China and India still do not have a point of economic interdependence that would not allow their relations to deteriorate. In this regard, experts called on the authors not to discount the influence of political factors on economic cooperation between the listed countries, as well as the role of the United States. According to the participants, political and geopolitical decisions certainly affect the region, and economic initiatives alone cannot achieve results.
In spite of this, recent events still show the strengthening of Russia’s trade relations with both China and India. Russia openly expressed its support for the Chinese Belt and Road initiative. This year, statements were made at the St. Petersburg International Economic Forum about measures aimed at revitalizing bilateral trade between Russia and India, moving it beyond the traditional trade with defense products and expanding cooperation in the fields of pharmaceutical, agricultural products, automotive components, as well as mining and metallurgical industries. Another participant in the expert discussion, Alok Raj, Minister of the Indian Embassy to the Russian Federation, drew attention to the trend towards an increase in investment and measures taken by Russia to protect foreign investment.
Georgy Toloraya, Executive Director of the Russian National Committee on BRICS Research, questioned the possibility of forecasting the economic situation. According to him, we are dealing with the fourth technological revolution, and now only the most general forecasts are possible, for example, how the world energy prices will behave and what impact the future technologies will have on the economy. He also drew attention to the poorly developed economic coordination between Russia, India and China, in contrast to the BRICS, where there is a wide network of tracks and different formats of interaction on strategic economic cooperation. The scholar is confident that the problems mentioned in the report should be solved with the help of the BRICS mechanisms.
Nevertheless, according to experts, the report can be considered another “road sign,” which offers a direction to move in order to take advantage of new opportunities emerging as a result of structural changes in the economy. Yaroslav Lissovolik, Programme director of the Valdai Club, chief economist of the Eurasian Development Bank, concluded that this would ultimately bring the world economy to a higher level.