India-Russia trade up by $27 bn but ‘too one sided’, says Indian envoy

The envoy pointed out that the Reserve Bank of India in July this year permitted the use of surplus rupees that Russian banks may accumulate in India for imports from India, investments in India, or for repatriation of funds to Russia through the global foreign exchange market

India-Russia trade has jumped to almost $27 billion since April 2022 but it is “too one-sided” to be sustainable as Indian exports account for only $2 billion in the total figure, India’s ambassador to Russia Pavan Kapoor said.

Indian exports to Russia account for only $2 billion (Representative Photo)

The sharp surge in trade, up from $13 billion during the fiscal year 2021-2022, is largely due to India’s increased purchases of discounted Russian commodities, especially crude and fertilisers, since the start of the Ukraine war in February. Till last year, Russia accounted for less than 1% of India’s energy supplies and two-way trade was largely driven by deals for defence hardware.

Kapoor, speaking at the Russia-India Business Dialogue Forum on Thursday, suggested several ways to balance two-way trade, including the use of surplus rupees accumulated by Russian banks in India for imports from India and investments in manufacturing backed by the production-linked incentive (PLI) scheme.

Noting that Russian exports accounted for about $9.5 billion in the overall bilateral trade of $13 billion in 2021-2022, Kapoor said trade grew substantially since April this year “in a large part due to much greater imports (by) India of crude oil and fertilisers.”

He added, “So, our trade has actually shot up quite dramatically, and the trade has almost reached about $27 billion in seven-eight months of this year, starting April. But while that is a very welcome trend, the fact is it has become too one-sided.”

Russian exports were worth $25 billion, while imports from India were only $2 billion. “Now this is not very sustainable, we have to work and see how can we make it more sustainable. We’ve got to make it more balanced,” Kapoor said.

He suggested that with many Western suppliers having moved out of Russia, it would be “fairly logical” for Russian entrepreneurs to look at sourcing goods from India. This can include pharmaceutical products, which already have a strong presence in the Russian market though there is a scope to increase volumes, and agricultural produce such as fruits, vegetables, dairy and meat, auto components, machinery items, chemicals and ceramics.

“The reason I mention this is because we are also trying to see how much more trade we can do in national currencies. The logic of it is simple– if you’re doing trade in national currencies, you need to have a more balanced trade. Otherwise, one side accumulates too much currency of the other and you’re stuck with what to do,” Kapoor said.

The envoy pointed out that the Reserve Bank of India in July this year permitted the use of surplus rupees that Russian banks may accumulate in India for imports from India, investments in India, or for repatriation of funds to Russia through the global foreign exchange market. “Many Russian banks, including Gazprombank and Bank Zenit, have been facilitated to open “special rupee Vostro” accounts in Indian banks which makes the transfer of money much easier,” the ambassador said.

Surplus rupees can also be invested in government securities, which have shown a yield of more than 6%, or in PLI-backed manufacturing schemes for auto components, food products, pharmaceuticals, textiles, solar photo-voltaic modules, and electronic products, he added.

Kapoor said India will soon begin formal negotiations for a free trade agreement (FTA) with the Eurasian Economic Union and this deal will take care of issues such as market access. To overcome problems arising from container shipping companies moving out of Russia, Kapoor pushed for the use of the International North-South Transport Corridor, which includes Iran’s Bandar Abbas and Chabahar ports, and the Vladivostok-Nhava Sheva eastern maritime corridor.

India has largely refrained from criticising Russia’s invasion of Ukraine, but the Indian leadership has in recent months pushed Moscow to end the hostilities because of the conflict’s wide-ranging impacts on developing countries, especially the rise in food and fuel prices.