Russia''s Shift from Europe to Asia

• In 2022, Russia decisively turned away from its economic ties with Europe, realigning its trade towards Asia.
• This shift effectively dissolved the neoliberal interdependence between Russia and Europe, leading to global economic repercussions.
• The seeds of this realignment were planted as early as the 2007–08 financial crisis but were delayed until 2022 due to Russia''s deep economic entanglement with Western markets, which made it vulnerable to external shocks from political and ideological conflicts.

India-Russia Economic Relations: Key Features

• Russia''s turn to the east resulted in a significant rise in trade with China, but it was the growth in India-Russia relations that attracted greater attention.
• Despite lacking common borders and well-established logistical routes, the two countries managed to significantly enhance their trade relations.
• Russia saw new opportunities in the Indian market, previously considered uncharted territory for Russian business, which led to discussions on reorienting their economic cooperation.

Factors Behind the Strengthening India-Russia Relations

• Political Imperatives for Russia:  Russia prioritized political stability in expanding its commercial relations. India’s non-involvement in the European conflict provided a reliable framework for Russia to establish long-term economic strategies.
• Economic Interests for India: India’s economic interests primarily drove its engagement with Russia, particularly in sectors such as oil and fertilizers, which have helped India manage inflation and climate-related food supply disruptions. Indian companies have also benefited by re-exporting Russian oil to Europe as refined petroleum products.

Significant Growth in Bilateral Trade

• The bilateral trade between India and Russia saw an exponential rise, moving from $3.5 billion in June 2022 to $7.5 billion in May 2024.
• This growth in trade surpassed the entire 2021 trade volume within a month, illustrating the rapid deepening of economic ties.
• Indian Prime Minister Narendra Modi and Russian President Vladimir Putin have set an ambitious target of achieving $100 billion in trade by 2030.

Challenges to Deepening Economic Ties

• Lack of Economic Complementarity: Both nations are pursuing domestic industrial agendas—Russia with its moderate technological nationalism and India with its ‘Make in India’ policy—which poses challenges for fostering complementarity between their economies.
• Sanctions and Trade Barriers: Western sanctions on Russia and the absence of mechanisms like stable payment systems and investment protection agreements limit the potential for balanced trade. Small and medium enterprises (SMEs) could be key to boosting trade, but structural obstacles like the lack of a single logistics operator or integration of national payment systems persist.
• Technology and Investment: While India and Russia once had a robust technology cooperation, especially in the Soviet era, modern-day collaboration lacks large-scale investment projects outside the nuclear and military sectors. There is a need to foster business-oriented cooperation in technology, particularly in areas like construction, modernization of industrial infrastructure, and STEM education.

Midterm Outlook and Prospects

• The Russia-India relationship, while boosted by the Ukraine crisis, faces limitations due to external pressures on India and Russia’s own economic vulnerabilities.
• However, opportunities for growth exist in sectors like defense, with Russian products offering low-cost advantages in the Indian market.
• Future collaboration could extend to civilian industries such as agricultural and construction machinery, medical equipment, and engineering goods.

The Quality of Trade

A critical issue lies in the nature of India’s exports to Russia. Most Indian exports, like smartphones, are manufactured in foreign assembly plants. To build a more sustainable economic relationship, both countries need to enhance bilateral production chains and address issues of localization to strengthen the foundation of their trade.

Conclusion

Russia’s pivot to Asia, and particularly India, represents a significant realignment in global geopolitics. While trade and economic relations have grown rapidly, there remain significant challenges to deepening and diversifying these ties. Both nations must overcome structural barriers, focus on complementarity, and enhance their investment and technological cooperation to sustain the momentum of their partnership.