Exim Matters: India-Russia targets are big, but businesses are cautious

While bilateral targets are ambitious, exporters wary of payment, logistics risks; deeper ties with West still drive business pragmatism

After rejecting the proposals from the United States (US) to halt the war in Ukraine earlier last week, the Russian President Vladimir Putin came to India for a short visit, amidst mild apprehensions of importers and exporters about how the US and its European allies would react. They were also intrigued as to why the foreign institutional investors were withdrawing  their funds causing the rupee to depreciate by almost 2% in two weeks, despite very low inflation (0.25%), high economic growth rate (8.2%) in the July-September quarter and interest rate cut by Reserve Bank of India (RBI) (by 0.25%) and about the International Monetary Fund’s ‘C’ rating of India’s data transparency.

 

Quite clearly, the continuation of war in Ukraine means more uncertainty, given the wavering support for Ukraine in the US and the decision of most European Union (EU) countries to support Ukraine and increase their military spending. With the threat of the US President to impose secondary sanctions on entities dealing with Russia and disrupt their logistics, insurance and payment mechanisms ringing in their ears, the businessmen listened carefully, but discounted what the leaders of India and Russia said because they had very little immediate significance.

 

The Russia-India joint statement talks of ambitious goals such as increasing bilateral trade to $100 billion by 2030 (from $65-70 billion now), promoting rupee-rouble settlement mechanisms, fast-tracking discussions on a free trade agreement with the Eurasian Economic Union and expanding cooperation in crude oil, fertilisers, coal, space, nuclear energy, tourism, migration, trade routes and movement of natural persons.  Since the Russian invasion of Ukraine in February 2022, India had stepped up its purchase of crude oil at discounted prices from Russia, benefitting the industries in refining and petrochemical sectors. Now, there are indications that such imports may be phased out due to fear of secondary sanctions by the U.S.

 

Exporters have their own reservations. The projected jump in merchandise exports of pharmaceuticals, textiles, machinery, tea, and coffee to Russia from roughly $4-4.5 billion now to $30-35 billion by 2030, depends on cargo and payment security arrangements. Banks and even major private sector entities are reluctant to deal with sanctioned Russian entities. International shipping lines continue to limit Russia-linked cargo. Insurance premiums remain high and unpredictable. A payment system in non-convertible rupees introduced on July 11, 2022 has not taken off.

 

Most traders do not appreciate the way the US President Donald Trump tries to dictate what India should or should not do, and they do support our government for standing up to any bullying or unreasonable demands. They also respect the longstanding diplomatic and military support from Russia, but they are pragmatic enough to recognise that our trade, technology and financial linkages with the US and Europe are much deeper and durable and that our dependence on merchandise and services exports to the US and Europe and the remittances from non-resident Indians there are very high. So, they may applaud the strategic relations with Russia based on mutual respect and trust, but would prefer a quick resolution of any issues with the U.S. Putin’s India visit sends a strong message to the U.S. and its allies that Russia is not isolated and that India will pursue an independent foreign policy. Businesses, however, need strong institutions in Russia to support and sustain commercial engagements.

 

Email: tncrajagopalan@gmail.com