Modi-Putin meeting reflects deepening India-Russia ties

At a time when India’s strategic ties with the Western world are growing, the economic relationship with Russia is seeing a phoenix-like resurgence. Bilateral trade rose to $65 billion in the last financial year from merely $12 billion just two years ago.

Talks are also on the anvil for bilateral investments, and a free trade agreement. The deepening of economic bonds has been the backdrop to Prime Minister Narendra Modi’s latest visit to Moscow. Western powers may be worried over this visible camaraderie between India and Russia, but there is an implicit acceptance that these longstanding ties are not getting derailed anytime soon.

The visit has ended with several expected outcomes. This includes setting the target for bilateral trade at $100 billion by 2030, developing a bilateral settlement system using national currencies, and launching digital financial instruments. An area of interest for India has been investing in Russia’s Far East and an agreement on joint projects has been concluded. Yet another issue of significance is the Vladivostok-Chennai corridor which is being considered a vital link for faster growth of both trade and investment in the region. A working group on increasing trade via the Northern Sea Route in the Arctic region is also being set up, though this is more relevant for Russia.

One of the highlights of the discussions has naturally been energy co-operation where the exponential rise in crude oil imports since the Ukraine war began is now a given. But an agreement has also been concluded on long-term co-operation in nuclear energy linked to existing plants, as well as fresh projects. Bilateral investments are similarly being promoted with Russia reported to be considering getting involved in the manufacturing of ships and railway wagons. India, on the other hand, is looking at upstream exploration plans in the resource-rich Far East.

On the trade front, the major element now is crude oil being bought at discounted prices despite Western sanctions. It has been due to these cheaper purchases that the oil import bill was contained at manageable levels over the last two years. But this also led to a huge expansion in the trade deficit with roughly $60 billion worth of imports compared to a paltry few crores of exports. The need to set right this imbalance has been recognised by both sides, and discussions on the issue have been continuing since last year.

One option has been to expand the rupee payment route as mentioned in the joint statement regarding the use of national currencies for settlement. Till last year, the effort to extend rupee payment from defence purchases to other areas had become a major irritant between the two countries. Russian Foreign Minister Sergei Lavrov expressed concern during the G-20 conference over the inability to utilise the roughly Rs 8 billion stored in Indian banks These accumulated rupee funds were largely on account of defence acquisitions rather than oil imports, which are being paid for in foreign currencies.

This nagging problem was largely resolved this year, according to recent reports, as the rupee funds have been utilised in various ways. This includes higher exports from India, along with investments in infrastructure projects and in the equity markets.

The need to evolve a rupee payment mechanism that is acceptable to both sides is critical, especially in the backdrop of Western sanctions on Russia. With banks reluctant to face strictures from Western financial institutions on this count, shifting to payment via national currency makes eminent sense.

As for Russia, it is now increasingly looking to countries like India and China to source a wide range of goods that were earlier being imported from European or American sources. Investment in the infrastructure sector here also becomes viable in the long run as Western sanctions are not likely to be lifted in the short run. It would, thus, be possible to move towards rupee-rouble payment systems, and this has been reflected in the joint statement.

One issue that has not been touched upon in detail in the talks is the proposed free trade agreement with the Russia-led Eurasian Economic Union (EEU). These negotiations resumed last year after a pause during the pandemic but could improve ties further with Russia as well as other EEU members: Armenia, Kazakhstan, Kyrgyzstan, and Belarus.

The Modi-Putin summit has certainly had its strategic aspects especially with the Prime Minister urging Russia to move towards peace talks with Ukraine. Defence ties have also been given a boost with the plan to promote domestic manufacturing of much-needed spare parts. But the agenda has been largely economic with the two countries recognising that mutual self-interest underpins the deepening relationship. The summit has demonstrated Moscow and New Delhi’s maturity and resolve to strengthen these bonds, despite the pressures imposed by a fractured geopolitical scenario.

(Sushma Ramachandran is a senior journalist.)

Disclaimer: The views expressed above are the author's own. They do not necessarily reflect the views of DH.