With the rise of China as a global leader, is it time to revive India-Russia ties?

By Jatin Bavishi

If one was to take a walk in the streets of (former) USSR during the 1950-60s, there was a high probability that he/she would bump into someone humming a famous Bollywood song or someone watching a dubbed Bollywood movie running at the nearest theatre. While Jawaharlal Nehru showcased India’s political and economic diplomacy, Raj Kapoor, as a bucolic country dweller and Amitabh Bachchan, as a frustrated member of the proletariat, represented India’s society and culture in the then biggest federation. Although India was committed to ‘Non-Alignment’, it tilted towards the Soviet bloc more as a rule than an exception.

How did it all change?

The series of events in the early 1990s changed the structure of this old bonhomie. The first was India’s adoption of market-based reforms and opening up its economy to foreign capital. The second was the collapse of the USSR itself. Although statistics hide as much as they disclose, a cursory glance at some indicators shows that there has been a cumulative effect of these two events.

According to data from the World Integrated Trade Solutions (WITS) software, the Soviet Union was India’s top goods export destination in 1990; with shipments amounting to $2.9 billion. When it came to imports, the Soviet Union featured at seventh in the list in terms of value, with goods worth $922 million being imported. Since 1990-91, India’s trade underwent further diversification, and as things stand, Russia is nowhere near the top of the list of India’s trade partners. WITS data showed that in 2015, India exported goods worth $1.6 billion to Russia, but had shipped more items in terms of value to 37 other countries. Also, India’s imports from Russia were valued at $4.5 billion, but India had imported goods worth more than that from 23 other nations.

New opportunities

2017 marks 70 years of diplomatic association between India and Russia. And now, it is time to renew the relationship. Ever since the 1990s, India has been believed to have shifted to the US-led axis while Russia has started investing in Pakistan and China. However, both Russia and India are each other’s most important ‘strategic partners’. India relies on Russia for defence equipment, nuclear energy capabilities and space research, along with support on issues of India’s interest in international bodies like UNSC; while Russia uses the Indian market for specialised goods.

Given the size of the Indian and Russian economies respectively, along with the long historical association and close cultural affinity, this seems to be a massive underutilization of potential. It is in this regard that the Russo-Indian plan to launch a Free Trade Zone under the Eurasian Economic Union (EAEU) assumes significance. Apart from Russia, the other members of EAEU are Belarus, Armenia, Kyrgyzstan and Kazakhstan.  The EAEU has an integrated single market of 183 million people and a GDP of over $4 trillion. India is also likely to push for the International North-South Transportation Corridor (INSTC), which will smoothen transit between Mumbai and St. Petersburg and will be instrumental in the eventual success of the Free Trade Agreement (FTA) with EAEU.

What does this mean for India?

The FTA will enable both India and Russia to diversify their respective trade baskets. As mentioned, the current content of this trade is low and is biased in favour of Russia owing to its technological edge. The sectors where India has a comparative advantage such as IT and pharmaceuticals have limited access to Russian and the adjacent economies. Even in the area of strategic trade, the relationship is similar to that of a buyer and a seller which heckles growth of robust indigenous capabilities. Technology transfer and investment in development of capacities is an important part of the ‘Make in India’ programme, and the FTA could help in bringing entrepreneurs onboard  by easing access to the resource-rich Central Asia. Moreover, the INSTC will enable India to strengthen its presence in Asia at a time when China is becoming a hegemon in its own right due to the One Belt One Road (OBOR) initiative. This will also complement the Chahbahar port that India is developing in collaboration with Iran.

India has targeted a trade of $30 billion with the five EAEU countries by 2025 and an annual investment of about $15 billion. Overall, the visit of Prime Minister Narendra Modi to St. Petersburg on June 1st and 2nd will be an important event to watch out for.

Featured Image Credits: Visual Hunt