1 year of Ukraine war: Cheaper crude from Russia pushes India's import bill

In a year since Russia invaded Ukraine, Moscow has leapfrogged to become India’s fifth largest trade partner from 25th spot in FY22. Trade between India and the sanctions-hit Russia touched $35 billion during the April-December period. In contrast, the size of the trade was almost a fourth, at $9.1 billion, the data showed.

The expansion in the size of trade has been because of a fivefold increase in imports to $32.81 billion during the April-December period, dominated by discounted Russian crude oil. India imported 17.1 per cent of its total crude oil, making Russia the third-largest crude oil supplier to India, after Iraq, Saudi Arabia, and ahead of the United Arab Emirates (UAE) and United States.

Apart from oil, key imports from Russia include fertiliser, coal, soybean, and sunflower oil, though the share of crude oil is about two-third of the value of inbound shipments from the country at $21.8 billion.

India has been under severe pressure from Western countries to not buy crude oil from Russia and join the price cap advocated by the G7 countries. However, India has repeatedly defended its right to import cheaper crude oil citing public interest. In December last year, External Affairs Minister S Jaishankar asserted that New Delhi’s procurement was just one-sixth of the European purchase in the last nine months. His comments came as a G7 price cap on Russian crude at $60 a barrel came into effect.

At a media briefing after holding wide-ranging talks with visiting German Foreign Minister Annalena Baerbock, Jaishankar noted that Europe can’t make choices to prioritise its energy needs while asking New Delhi to do something else, asserting that discussions between India and Russia to expand the trade basket started much before beginning of the Ukraine conflict.

Export on a slow lane

While it was expected that Russia will lean on India for many of its essential consumer items, outbound shipment from India has been anything but encouraging. Exports to Russia contracted 13.5 per cent at $2.2 billion during the first three quarters of the current fiscal year. After a drop in March and April, exports have gradually started picking up, but at a slow pace, mainly due to logistics and payments-related challenges. 

Even as the Reserve Bank of India announced a new mechanism for settling international trade in rupee, it is yet to pick up. Once the rupee trade picks up, India is likely to get a bigger share of the Russian market.

A government official said this might take more time since exporters are also worried about facing sanctions from the West. “Apart from that, internal systems of banks are not prepared enough to tackle such transactions,” he added.

As a result of higher imports and slower exports, India’s trade deficit with Russia widened to $30.61 billion during April-December from $4.03 billion a year earlier.

Ajay Sahai, director-general and chief executive officer of the Federation of Indian Export Organisations, however, said the trade deficit with Russia is not a matter of concern because unlike in the case of China, India is not importing non-essential items from Russia. “In the case of Russia, crude oil is available at a discounted /competitive price. As a result, we are able to fight inflation. A lot of imported oil (from Russia) is refined and exported to countries such as the Netherlands, European Union, and the US. India’s refined oil exports to other countries are also going up,” he said.