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OVERVIEW OF INDIA-RUSSIA ECONOMIC COOPERATION

A. Overview

1. Enhancing trade and economic cooperation between India and Russia is a key priority for the political leadership of both the countries. Bilateral trade amounted to USD 9.51 billion in 2014 wherein Indian exports were USD 3.17 billion and Russian exports were USD 6.34 billion. In 2015, as per the data available till October 2015, bilateral trade between India and Russia amounted to USD 5.41 billion, with Indian exports to Russia worth USD 1.49 billion and Indian imports from Russia USD 3.92 billion. The cumulative Indian investment between the years 2000 to 2014 in Russia are estimated to be about USD 8 billion, while Russian investments in India are about USD 3 billion. During the annual summit held in December 2015, both sides have highlighted the importance of further enhancing the trade and economic cooperation and have reiterated the commitment to increase the bilateral trade to US$30 billion by 2025 and the bilateral investment each way to US$15 billion by 2025.

2. A number of institutionalised mechanisms at governmental and non-governmental levels contribute to the development of economic cooperation between the two countries. While the India Russia Intergovernmental Commission for Trade, Economic, Scientific & Cultural Cooperation (IRIGC-TEC) guides the conduct of economic cooperation at the Governmental level, the Indo-Russian Forum for Trade & Investment and the India-Russia CEO’s Council have evolved into the platforms for facilitating direct B2B interactions between the two countries. 

3. India is also contemplating a FTA/ CECA with the Eurasian Economic Union. The Eurasian Economic Union is one of the important emerging economic blocks, and India is keen to engage more closely with Russia and the CIS countries to further intensify our trade and economic cooperation with this region. On 18 June 2015, India and the Eurasian Economic Union signed a joint statement establishing a Joint Feasibility Study Group (JFSG) for feasibility study on the proposed FTA/CECA between India and the Eurasian Economic Union. The first meeting of the JFSG was held in Moscow on 31 July 2015 and both sides are presently finalising the draft report of the Joint Study Group.

3. There have been regular bilateral exchanges at the highest levels. The visit Prime Minister Shri Narendra Modi to Russia for the 16th Indo-Russian Annual Summit on 24 December 2015 was has provided a strong impetus to the bilateral relations. During the summit, around 17 agreements, including 10 agreements related to economic and trade matters were signed, reaffirming the desire to intensify the economic engagement as a new pillar of the special and privileged strategic partnership between the two countries. Prime Minister Narendra Modi had also visited Ufa, Russian Federation, from 8-10 July 2015 and participated in the BRICS and SCO Summits. A broad spectrum of issues, including economic and trade cooperation were discussed during the meeting. President of India, Shri Pranab Mukherjee visited Moscow in May 2015 and participated in the 70th Anniversary of the Victory Day celebrations. He also met with President Putin and discussed various issues related to bilateral cooperation.

4. Ms. Sushma Swaraj, External Affairs Minister visited Moscow and co-chaired the 21st Session of the India-Russia Intergovernmental Commission for Trade, Economic, Scientific and Cultural Cooperation (IRIGC-TEC) on 20 October 2015. Ms Nirmala Sitharaman, Minister of State for Commerce & Industry, led a high level business delegation at the St Petersburg International Economic Forum from 17-19 June 2015. In addition, there were many official and expert level visits from India covering a wide spectrum of issues on the economic side, as a part of Russian BRICS presidency.

5. Other important visits in recent months include the visit of Minister of Finance, Minister of State for Environment & Forests, Minister of State for Petroleum & Natural Gas, Minister of State for Agriculture & Food Processing, Comptroller & Auditor General of India, Commerce Secretary and senior officials from Ministry of Commerce, Ministry of Petroleum & Natural Gas, Department of Science & Technology, Department of Chemicals & Fertilisers, Ministry of Health & Family Welfare, Ministry of Finance, Reserve Bank of India, MMTC, Export Promotion Council and APEDA, which have maintained the momentum of our bilateral relations in different areas of cooperation.

B. Trade

6.         The bilateral trade during the period January–October 2015 amounted to USD 5.41 billion, with Indian exports amounting to USD 1.49 billion and imports from Russia amounting to USD 3.92 billion. Major items of export from India include pharmaceuticals, miscellaneous manufactures, iron & steel, apparels, tea, coffee and tobacco. Major items of import from Russia include defence equipment, nuclear power equipment, fertilizers, electrical machinery, steels and diamonds.

6. Bilateral trade figures for last ten years are given below:

(amt in US $ billion)

Year

India’s Import
from Russia

India’s export
to Russia

Total trade

Percentage
Increase YOY

2004

1.55

0.63

2.18

(-)34.17

2005

2.31

0.78

3.09

41.78

2006

2.98

0.96

3.95

27.66

2007

4.01

1.30

5.32

34.51

2008

5.23

1.71

6.94

30.56

2009

5.93

1.52

7.46

7.4

2010

6.39

2.14

8.53

14.4

2011

6.09

2.79

8.89

4.19

2012

7.91

3.04

10.95

23.8

2013

7.01

3. 10       

10.11

-7.34

2014

6.34

3.17

9.51

- 5.6

 

C. Investment

7.         The cumulative Indian investments in Russia for the period 2000-14 are estimated to be about USD 8 billion, which include Imperial Energy Tomsk; Volzhsky Abrasive Works Volgograd; 20% stakes in Sakhalin-I and the Commercial Indo Bank. Russian investments in India total about USD 3 billion, including Kamaz Vectra in Hosur; Shyam Sistema Telelinks Ltd, Sberbank and VTB.

8.         Both the Governments have undertaken initiatives to promote bilateral investments, primarily through facilitating high-level Government to business and Business to Business contacts apart from the on-going investment process in strategic sectors in both the countries. Investment cooperation has been envisaged is some priority sectors such as hydrocarbons, power, coal, nuclear power, fertilizers, IT, pharmaceuticals, mineral and metallurgy amongst others.

D. Institutional Framework for Bilateral Economic Cooperation

I. Government-to-Government

9.         The India-Russia Inter-Governmental Commission on Trade, Economic, Scientific, Technological and Cultural Cooperation (IRIGC-TEC) is the apex G2G forum for bilateral economic cooperation. IRIGC-TEC is chaired by the External Affairs Minister from the Indian side and Deputy Prime Minister from the Russian side. The IRIGC integrates inputs from the working groups on economic and trade cooperation, Priority Investments, Modernisation and Industrial Cooperation (sub-groups on Civil Aviation, Fertilisers, Mining and Modernisation), outstanding issues, energy & energy efficiency, tourism and culture, science and technology, IT & Communication, and sub-groups on banking and financial matters and on conservation of tigers & leopards. The 21st session of IRIGC-TEC was held in Moscow in October 2015, and the 22nd session of the IRIGC-TEC is scheduled to be held in India in 2016.

II. Business-to-Business

10.       Conscious efforts are being made by both India and Russia to promote establishment of new contacts and wider cooperation between commercial and industrial circles and business associations of the two countries. The main institutional arrangements are as follows:

                i.              An India-Russia Forum on Trade and Investment established since 2007 has met seven times with wide business participation from both sides. The eighth session of the forum was held in New Delhi in November 2014. Minister of State for Commerce & Industry Ms Nirmala Sitharaman and Deputy Prime Minister Mr Dmitry Rogozin presided over the plenary session of the forum.

ii.        India and Russia have agreed to have enhanced Indian participation in the prestigious St. Petersburg International Economic Forum (SPIEF). Accordingly, CII and SPIEF Foundation have entered into a MOU for regular institutionalized B2B interactions and exchanges. Ms Nirmala Sitharaman, Minister of State for Commerce & Industry led a high-level CEOs’ delegation from CII to participate at the SPIEF in July 2015.

iii.       The India Show, a multi-sectoral trade fair was organised in Moscow from 24 to 26 September 2014 which was inaugurated by Shri Rajeev Kher, Commerce Secretary and Mr Alexey Likhachev, Deputy Minister in the Ministry of Economic Development of the Russian Federation. More than 80 Indian companies participated in the India Show. India has accepted the partner country status at the forthcoming INNOPROM 2016 to held in Yekaterinburg in July 2016.

III. Banking Links

11.       Development of banking links between India and Russia has witnessed some concrete progress. Several Russian banks have opened their Representative Offices/Branches in India. These include VTB, Sberbank, Vnesheconombank, Promsvazbank and Gazprombank. Similarly, the Commercial Bank of India LLC (JV of two major Indian banks: SBI & Canara Bank) is providing banking services in Russia.

E. Priority Areas for Cooperation

12.       Sectorally, a number of areas have been identified where there is complementarity and we seek to intensify our cooperation: These include: hydrocarbons, IT, pharmaceuticals and biotechnology, metals and minerals, auto components, fertilizers, food processing, construction and engineering services, financial services and machine building.

13.       In the area of hydrocarbons, we have been actively promoting cooperation between oil and gas companies with a view to exploring the possibilities for participation of Indian companies in developing the energy resources in Russia. ONGC Videsh Ltd. has a 20% stake in Sakhalin-I. It has also acquired Imperial Energy in 2008 which has oil-producing assets in Tomsk. ONGC and Rosneft signed an MoU in May 2014 for bilateral cooperation in subsurface surveys, exploration, appraisal and hydrocarbons production in the offshore Arctic Region of Russia. In September 2015, OVL signed an agreement with Rosneft to acquire 15% stakes in Rosneft’s Vankorneft oil field. Other Indian oil and gas companies are also in talks with Rosneft for possible Indian investment in Russia in the hydrocarbon sector.  In 2012, Gazprom Marketing & Trading Singapore and GAIL have signed a 20-year LNG supply contract. In July 2015, Rosneft & ESSAR had signed a non-disclosure agreement under which Rosneft for acquisition of 49% stakes by Rosneft in ESSAR’s Vadinar Oil Refinery. ESSAR has also signed a contract with Rosneft which envisages supply of 10 million barrels of oil over a period of 10 years at a possible investment of USD 60 billion.

14.       In the pharmaceuticals sector, where India has emerged as a reliable supplier of quality generic drugs to Russia, potential for further cooperation is promising. Under Pharma 2020 programme of the Russian Government which aims at developing domestic production base, leading Indian Pharma companies have started engaging with Russian partners to consider possibilities of joint investments. Several B2B agreements have been concluded and a Memorandum of Understanding between the Central Drug Standard Control Organization of India and the Federal Service on Surveillance in Healthcare and Social Development of the Russian Federation on assurance of quality, safety and efficacy of medicines has been concluded for facilitating future cooperation in this sector.

15.       The potential for cooperation between India and Russia in the IT sector has been recognized by the leadership of both the countries. Russia is one of the fast growing IT markets in the world. In October 2015, the first India-Russia Roundtable on Information and Communication Technology was held in Moscow with participation of business representatives from both the countries. The discussion centred around various ways of further intensifying cooperation in the field of cyber security, e-governance and other IT related issues.

16.       There is a natural complementarity between India and Russia in the area of trade in rough diamonds - Russia as a major producer of rough diamonds and India as the leading processing center. In order to encourage more direct trade between Alrosa and Indian diamond traders, Alrosa is planning to open an office in the newly established Special Notified Zone (SNZ) in Mumbai. As a first step, Alrosa has carried out the first display of diamonds at the SNZ in December 2015.

17.       There are significant opportunities for Russian companies in India particularly in the area of construction, major infrastructure projects such as dedicated freight corridors and industrial clusters, smart cities and engineering services. Russian companies are encouraged to avail of the opportunities under the Make in India initiative and to explore the possibility of technology transfer and joint manufacturing in India given the advantage of skilled labour force and the available resources in India. On the other hand, Indian companies are encouraged to explore major investment options in Russia especially in natural resources such as coal, fertilisers, hydrocarbons, minerals and rare earth metals.

18.       There has been renewed interest to explore the possibility of trade through the International North South Transport Corridor which will open up a new route for trade between South Asia and Central Asia and the Caucasus. An INSTC stakeholders conference was held in Mumbai in June 2015, and the meetings of the Expert Group and INSTC Council were held in New Delhi in September 2015. The new route is especially important for trade between India and Russia as it would reduce the transport time to almost half of the existing time and also lead to major savings. Efforts are on to operationalise this project at the earliest and encourage the business community from both the countries to avail the benefit from this new option.

*****

February 2016

 

 

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