Introduction

The trade relationship between India and Russia has seen significant evolution over the past five years, driven by a combination of geopolitical shifts, energy demands, and strategic economic partnerships. This article delves into the key business figures, major traded products, and the dynamic shifts in trade currency practices between these two nations.

Trade Dynamics and Key Business Figures

Recent Growth in Trade Volume:

2023-24 Fiscal Year: Bilateral trade reached an all-time high of USD 65.7 billion, with India’s exports at USD 4.26 billion and imports at USD 61.44 billion.

2022-23: The trade volume was USD 49.36 billion, with India importing significantly more than it exported, leading to a trade deficit of about USD 43 billion.

Major Exported Products from India to Russia:

Pharmaceuticals (particularly generic drugs), organic chemicals, electrical machinery, mechanical appliances, iron and steel, marine products, and textiles have been notable exports.

Major Imported Products from Russia to India:

The trade is heavily skewed towards energy products, with crude petroleum being the largest import, followed by coal, refined petroleum, fertilizers, and mineral resources. Other significant imports include precious stones, metals, and vegetable oils.

Trade Targets:

Both countries have set an ambitious target to increase bilateral trade to USD 100 billion by 2030.

Currency and Financial Transactions

Pre-War Scenario:

Historically, trade was predominantly settled in US dollars, leveraging the SWIFT system for international transactions.

Post-Ukraine War Developments:

Rupee-Ruble Mechanism: Initially, there was an attempt to settle trade in local currencies due to sanctions on Russia, but it faced challenges due to the limited international use of the Indian Rupee and Russia’s reluctance to accumulate it.

Current Practices:

Diversification: Significant portions of trade, especially oil, are now settled in alternative currencies like the Chinese Yuan, UAE Dirham, and occasionally, the Russian Ruble. This shift was necessitated by Western sanctions that limited Russia’s access to SWIFT for dollar transactions.

Trade Deficit Management: India has been exploring various methods to manage the trade deficit, including local currency trade and investments by Russia in Indian projects as a counterbalance.

Changes in Business Scenario Over the Last Five Years

Impact of Geopolitical Events:

Sanctions and Reorientation: The war in Ukraine and subsequent Western sanctions have compelled Russia to redirect its exports, particularly oil, towards Asia, with India emerging as a major buyer due to discounted prices.

Strategic Enhancements:

Free Trade Agreements: Discussions are underway for a Free Trade Agreement (FTA) between India and the Eurasian Economic Union (EAEU), which could further boost trade.

Investment and Cooperation: There’s been a push towards increasing bilateral investments, with targets set at USD 50 billion in investments by 2025. Key areas include energy, pharmaceuticals, IT, and infrastructure.

Challenges and Opportunities:

Currency Volatility: The use of multiple currencies introduces complexity in managing currency risks.

Export Growth: India is looking to increase its exports to Russia, leveraging its competitive advantage in various products.

Trade Imbalance: The significant trade imbalance, particularly in oil, poses both a challenge and an opportunity for negotiation in trade terms.

Conclusion

The trade relationship between India and Russia has evolved dramatically in the last five years, marked by a surge in trade volume, a shift in currency usage for trade settlements, and strategic moves towards deeper economic integration. While challenges like currency exchange and trade imbalances persist, there is clear intent from both sides to expand and diversify their economic ties, aiming for a more balanced and robust trade partnership by 2030.