our country and India: what they trade and how relations will develop further

As the EU, US and other countries turn away from our country, its economic ties with India are strengthening. Trends analyze the current situation in relations between the two countries and tell what to expect in the coming years

Trade turnover between countries

There is a lot of talk about India right now, and this is due to two big news:

• widely disseminated information that in terms of population the country overtook China and reached the figure of 1,415 billion people;
• The Prime Minister of India announced plans to achieve economic growth of 7,5% by the end of 2022. The UN estimate is more modest (6,4%), but even with it, the country becomes a potential record holder, while the organization’s forecast for China is 4,5%, for the EU – 2,7%, for the USA – 2,6%.

The surge of interest in India is largely related to geopolitical issues. By July 2022, this country is one of the largest players in the world that has not joined the sanctions against our country.

In 2014, the Ministry of Industry and Trade of the Russian Federation announced plans to increase trade and economic turnover between Russia and India to $30 billion by 2025. At the end of 2021, it amounted to $13,5 billion, an increase of almost 50% compared to the pandemic year of 2020. This is a lot, but the pace is hardly sufficient to achieve the goal in the remaining 2,5 years. At the same time, India has not yet entered the top ten key foreign trade partners in our country. With a share of 1,7% at the end of last year, this country ranks 14th in the overall ranking.

In total, in 2021, our country exported goods to India in the amount of $9,13 billion. Almost a third of this volume fell on mineral products (including ore and fuel), 19,88% were machinery, equipment and vehicles, 18,44. 16,08% – precious metals and stones, 5,5% – products of the chemical industry, 4,27% – metals and products from them, 2021% – food products and agricultural raw materials. In turn, India exported goods worth $4,43 billion to the Russian Federation in 31,7. These are mainly chemical products (29,9%), machinery, equipment and vehicles (16,34%), food products and agricultural raw materials ( 7,69%), metals and metal products (7,31%), textiles and footwear (XNUMX%).

Import and export structure

It is difficult to accurately assess the data on trade between Russia and India for the first half of 2022, because the customs service of the Russian Federation has ceased to publish data on imports and exports of our country since April. But there is no doubt that India’s large and growing economy has become one of the main beneficiaries of the international sanctions imposed on Russia: one cannot help but take advantage of a situation in which raw materials can be bought profitably at a deep discount. Reuters reports that in May our country with a volume of 819 thousand barrels per day became the second oil supplier to India after Iraq, pushing Saudi Arabia to third place.

The volume of imports of Russian thermal coal to India, according to the country’s Ministry of Industry and Trade, has increased by 2,7 thousand times to more than 570 thousand tons. Russian gas supplies are also continuing: India’s largest gas transportation company GAIL is not only not going to refuse from the annual contract with Gazprom for the supply of 2,5 million tons of LNG, but also plans to increase these volumes. In the future, India may increase the purchase of Russian gold, which the G7 countries have refused. While our country accounts for 9% of the world’s production of the yellow metal, India is one of its largest consumers.

our country continues to be the second largest exporter of weapons and military equipment in the world after the United States with a share of about 19% in 2014-2020, and India remains the largest buyer of such goods from the Russian Federation. From 2017 to 2021, in the total volume of deliveries, this country accounted for 27,9%, China was in second place with 21,1%, Egypt was in third with 12,6%. However, since 2017, India has been buying less and less weapons from the Russian Federation, but it will be difficult for it to completely abandon it. The point is in long-term relationships, and in a large amount of already accumulated equipment that needs to be serviced, and in relatively low prices.

In the category of food products, our country is one of the largest consumers of Indian tea, importing up to 45 million kg per year. A significant share of India’s exports to Russia is coffee and textiles. Rice occupies an important share in trade between countries – in 2020, almost 60% of all its supplies to the Russian Federation were provided by India. It is quite natural that in the new economic realities, when both countries need access to new markets, the number of product categories in foreign trade will only increase.

Settlements in rubles and rupees

Sanctions against Russian banks have become a serious test for established trade relations between the Russian Federation and India. The disconnection from SWIFT and the ban on transactions with dollars led to the fact that in March Indian exporters could not receive payments in the amount of about $400-500 million. However, the reaction of both countries was not long in coming: already at the end of March, their representatives were able to agree on creating their own systems for mutual settlement and transmission of import and export documents.

According to Bloomberg, from our country, this mechanics was based on SPFS – the system for transmitting financial messages from the Bank to our country. Through it, the rubles are deposited in the accounts of Indian banks, where they are converted into rupees, and in the same way in the opposite direction. Although India still pays for oil in dollars and euros. In addition, discussions are underway on the mutual integration of the Russian payment system Mir with the Indian UPI, and negotiations are underway to simplify settlements at the level of individual banks. From India, these are Canara Bank, Bank of Maharashtra and Uco Bank, from our country – Petersburg Social Commercial Bank, Zenit, Tatsotsbank, Centrocredit, Soyuz, MTS Bank and Gazprombank “.

between two corridors

According to The Economic Times, the resumed deliveries of goods from India to Russia in April go mainly through ports in Georgia, and payments are provided by Sberbank, Alfa-Bank and the Bank of Maharashtra. It seems that this payment process was quickly established in the shortest possible time, but the logistics problems that both states run into are unlikely to be solved so simply and quickly. Against the background of the global container crisis, the increase in the cost of insurance for goods going to the Russian Federation and the refusal of many carriers to send containers to our country, our country and India have to return to the topic of creating international transport corridors for effective cooperation.

The first such multimodal (including different types of transport: ships, cars and trains) route, the North-South ITC (NSTC), has been under construction since 2002 with varying success. The project was initiated by our country, Iran and India, but Azerbaijan plays an important role in the route of goods from Mumbai to Moscow and St. Petersburg through Tehran and two ports in the south of the Islamic Republic. In addition, the idea involves two side branches of the route: from Tehran to Turkey and further to Europe to the west, as well as to Asia – Turkmenistan, Uzbekistan and Kazakhstan to the east.

Compared to the traditional route through the Suez Canal, the route along the North-South ITC is 40% shorter and 30% cheaper. But there are many problems: from the traditional Russian bureaucracy, issues of unification of documents and insufficient awareness of potential shippers to such moments as the difference in the width of the railway track and the Iranian-Azerbaijani relations aggravated against the backdrop of the second Karabakh war. There are also difficulties associated with the fact that there are many mountains on the territory of Iran, and this greatly complicates the development of transport infrastructure, which is now in an unsatisfactory state, especially against the backdrop of serious international sanctions. However, in the new economic realities of 2022, our country is clearly planning to make a serious bet on this particular route, because friendly relations with Iran have been established for a long time, and access to the Indian market is needed more than ever.

The second possible fast route for Indian goods to Russia and vice versa is the sea route from the Indian city of Chennai to Vladivostok. Representatives of the two countries began discussing it in 2019, but since then, things have not gone beyond a promising idea that allows speeding up the transportation of goods up to 24 days. It is very likely that this project will now enter the implementation stage.

India and sanctions against our country

It is unlikely that anyone will be able to give a confident answer to the question: “Will India join the sanctions against our country?”. However, so far this is not only unprofitable for the country, but also generally contradicts its geopolitical path. Shortly after gaining independence from Great Britain in 1947, India chose the strategy of not joining any military-political alliances, but at the same time, this never meant giving up good neighborly economic relations with key partners.

In the 20st century, this approach has been transformed into a “multi-attachment” strategy: maintaining relations with a wide variety of countries and economic blocs. The most important for India among them are the SCO, BRICS, WTO and GXNUMX. It is very likely that one of the keys to understanding this logic lies in the ancient Hindu saying in Sanskrit – Vasudhaiva Kutumbakam, “the whole world is one family.” Of course, it is not devoid of pragmatism: maneuvering between world powers and maintaining favorable relations with a maximum of partners, India is moving towards its own goal – to become one of the greatest powers on the planet, which cannot be ignored.

All this highlights the way the relationship between India and China is being built. On the one hand, the countries have been arguing and even fighting with each other over a number of territories since 1962, and in the international arena, the PRC acts as India’s main competitor. On the other hand, China is the second largest destination for Indian exports ($8,8 billion in 2020-2021) and the first destination for imports ($65,21 billion). The United States is an equally significant partner: first in terms of exports from India ($23,3 billion) and second in terms of imports ($28,8 billion). But if India had both periods of rapprochement and cooling off with these two states, then friendship with the USSR has been going on almost since the country gained independence. Soviet specialists helped India build heavy industry, the USSR supported it in the war with Pakistan in 1971 and generally provided defense capability with its weapons, and our modern country has maintained a serious position in India’s nuclear energy sector.

It turns out that all these 70 years, India has successfully maneuvered between the three states, deriving benefits for itself. Since this policy has been so successful, is there any point in changing it? Moreover, at the global level, it is frankly difficult to force a country with the fifth largest economy in the world in terms of GDP and a population of 1,4 billion people to openly and aggressively act against a long-term partner. And the United States, which acts as the main driver of such actions, is also hardly needed, because in the eyes of Washington, India plays the role of a counterbalance to China. Of course, India itself sees this in a completely different way, but this situation only further strengthens its negotiating position with Western countries.