As per the think tank GTRI, the important steps which include increasing exports, making local currency trading workable and a free trade agreement with the Eurasian Economic Union are likely to boost trade between India and Russia.
The Global Trade Research Initiative (GTRI) stated, "India should not worry over the trade deficit, as it is getting crude petroleum oil at cheaper than market rates from Russia and it is also cutting India's overall oil import bill."
The trade relationship between India and Russia has shifted significantly since the Ukraine war began in February 2022 coupled by the US imposing strict sanctions on Russia. There has been a significant increase in imports from Russia, which resulted in a notable trade imbalance.
While imports surged by about 8,300 percent, exports during the financial year 2020-21 and 2023-24 have increased by 59 percent. It is also important to note that the trade deficit rose from USD 2.8 billion prior to war in 2020-21 to USD 57.2 billion, looking at the current situation.
Furthermore, it is said that the import increase is solely due to India's strategic procurement of crude oil from Russia; influencing favorable trade terms. With this, Russia's need to find new markets amidst Western sanctions. India and Russia have promised an ambitious bilateral trade target of USD 100 billion by 2030. This was hatched during Prime Minister Narendra Modi's Russia visit on July 8-9.
"With current bilateral trade at USD 65.7 billion in 2023-24, the target seems achievable," GTRI Founder Ajay Srivastava said.
While imports driven by crude oil stood at USD 61.4 billionIn 2023-24, India's exports to Russia were USD 4.3 billion. India has been exporting a wide array of products to Russia which include smartphones, shrimp, medicine, parts of airplanes and helicopters, meat, tiles, coffee, computers, chemicals, and fruits.
"India has competitive advantage in these products and hence the potential to export more to Russia. India should prepare a product-level strategy to promote exports," Srivastava said. The report said that trade cannot be settled in rupee due to limited international use of the Indian rupee and Russia's reluctance to accumulate it beyond a limit when it comes to local currency trade.
Post Ukraine war, the US put strict sanctions on Russia which forbids them from utilizing SWIFT (Society for Worldwide Interbank Financial Telecommunication) pipeline for dollar transactions. However, the major question for India here is to find the best way to pay Russia the amount equal to USD 60 billion in trade deficit.
It is said that local currency trading would be beneficial to India. And to facilitate this, India needs to establish a transparent and open currency exchange. This exchange would offer clear, market-determined exchange rates between local currencies like Indian rupee and other currencies including the Russian rouble, Malaysian ringgit, Thai baht, or Chinese yuan.
Furthermore, this would not only enable banks to garner a reliable reference for issuing letters of credit but also aid businesses understand currency volatility better at the same time. Both the countries, India and Russia, could exchange their surplus for other currencies more efficiently in a multi currency exchange platform.
Additionally, there has been a suggestion for making the International North-South Transport Corridor (INSTC) functional. Linking India with Iran, Azerbaijan, Russia, Central Asia, and Europe, The INSTC is a 7,200-kilometer multi-modal route.
Compared to the Suez Canal route, INSTC would reduce transit time between India and western Russian ports from 45 to 25 days while also cutting freight costs by 30 percent when functional. Despite these advantages, it has limited use due to pressing underinvestment in infrastructure. Other logistical challenges arise due to the frequent loading and unloading of cargo along the INSTC which is coupled by the involvement of sanctioned Iran. Currently, it is said that India is negotiating the "India-Eurasian Economic Union (EAEU) Trade Agreement" with Russia, Kazakhstan, Armenia, Kyrgyzstan and Belarus.
