Many comments on New Delhi’s position on Moscow’s invasion of Ukraine have rightly focused on two factors: (1) India’s dependence on Russian military goods and, less frequently, (2) India’s dependence on India of energy cooperation with Russia. The most significant aspect of their collaboration in the field of energy is the help that the Russians are offering to the Indians in the construction of nuclear reactors. In recent months, however, a new facet of this energy cooperation has been New Delhi’s increasing purchase of Russian oil.
And yet, in this article, I would say that Indo-Russian trade in general is on feet of clay. Rather than being a deep and broad dependency and an economic anchor for political relations, this bilateral exchange is more of a shadow of the Cold War past and a testament to the limited offerings of the Russian economy. While for the moment we tend to focus on New Delhi’s political refusal to condemn Moscow, in purely economic terms it is clear that India is attracted to markets beyond Russia.
Let me start with general data, especially when comparing trade with Russia with trade with other countries. In 2020, Indian exports to Russia amounted to a meager 1.1 percent of India’s total exports, and that was a high point. The figure was 0.77 percent in 2018, 0.83 percent in 2017, 0.81 percent in 2016, 0.70 percent in 2015, and so on. Imports from Russia are also not impressive: in 2020, 1.6% of Indian imports came from Russia, compared to 1.41% in 2019, 1.38% in 2018, 1.53% in 2017 , 1.57% of 2016, 1.32% of 2015, etc. . These import statistics include the crucial transfer of military products, hidden under more general categories such as “other sea vessels”, “explosive ordnance” or sometimes simply “unspecified” products.
The components of this trade also show that, apart from military products, it is mostly based on goods with little added value. Within Indian exports to Russia, the largest category by far has been packaged medicines. Apart from military products, Russian exports to India, in turn, have been dominated by raw materials and energy resources, such as diamonds, crude oil, coal briquettes, silver and copper. The three significant exceptions to this in the highest value group of imported products from Russia are nuclear reactors, gas turbines and potassium fertilizers.
My reasoning can respond to at least two counterpoints: first, that the annual trade volume will increase considerably after the end of 2022, given the increasing imports of Russian oil and, second, that the value of the trade as such is not sufficient to assess the importance to buy military products and energy resources. These two categories have a strategic value, and not only economic.
Regarding the first point, Russia’s oil imports have seen an increase in recent months, and this is confirmed by the Indian Ministry of Trade and Industry. data. We are no longer talking about the one-time purchases of 1 million barrels, and then 3 million of them, that were revealed in the first months of the war. In fiscal year 2021, in the April-August period, the value of all petroleum products imported from Russia to India was $1.7 billion, while in the same period of 2022, that value was $13.7 billion. This may mean that once annual data is available, Russia will go from being a marginal supplier of oil to India to a major one (and a major importer of India as such). And yet we must locate such developments within longer trends.
Russian oil is unlikely to be a crucial component of India’s imports of energy resources in the coming years. There’s a reason it didn’t have this status in previous years: The long sea route tankers must take between Russia and India is reflected in the price of shipping. India has traditionally bought much more oil from closer countries in the Middle East and Africa. Therefore, the current appeal of Russian oil to India must come from the fact that Moscow is offering a deep discount. This is certainly beneficial to New Delhi (otherwise India would not have been buying), but the deal is probably only beneficial to Russia as a temporary and desperate measure. Having suffered considerable economic losses and the freezing of many of its assets abroad, Moscow is looking for a quick income. However, I doubt that the Kremlin will be willing to retain a special price for India in, say, five to ten years’ time.
However, the second counterpoint is more important and valid. Buying weapons and oil is not the same as buying clothes or toys. India’s imports from China are many times higher than those from Russia, but many of the products bought from the PRC have no strategic value (although some do). China and the United States are India’s two largest trading partners, but Moscow remains the largest source of military products used by the Indian armed forces. Undoubtedly, this factor will remain the backbone of Indo-Russian relations for years to come.
And yet, even here, the same general conclusions apply: the Russian economy is falling further behind Western economies, while India is increasingly in need of value-added products and those based on more advanced technologies. . Furthermore, New Delhi would ideally like to attract foreign direct investment that would allow a transfer of knowledge so that eventually Indian companies could manufacture the same goods. For most industries, Russia cannot meet these conditions. When it comes to being a source of FDI, Russia is a comparatively small player in the Indian market, just as it is in the case of bilateral trade. indian data Summarizing the last 22 years (April 2000 to August 2022) they indicate that only 3 per cent of total FDI in India originated from Russia.
It is true that knowledge transfer does not happen as quickly in the defense sector, where political and strategic considerations often take precedence over mere market demand. However, even in this field, Russia has a limited number of advanced platforms to offer India. The fact that American and French military products were sometimes chosen over Russian items in previous years, or bought to replace older Russian equivalents, suggests a certain trend. Should the Russian economy come out of the war in tatters (and with limited access to crucial Western technologies), and should the Indian economy pick up steam, Indian interest in Russian military products may decline further and further. speed.
New Delhi is unlikely to bow to Western diplomatic pressure due to India’s dependence on Russia. The point is that for New Delhi, economic and strategic calculations trump political and ideological divisions, but this point goes both ways. The Indian government views its partnership with Russia in exactly the same pragmatic way as it views its cooperation with the West. New Delhi has bought not only Russian warplanes and oil, but also American helicopters and planes, and the list goes on.
Russian products have the great advantage of being cheaper, and this will be a crucial factor in India’s arms imports for many years to come. Therefore, the more funds New Delhi has, the less secure Russia’s position in the Indian market will be. Advanced Western technologies are much more expensive, and when it comes to key military platforms, Washington has been unwilling to share its own technology with India, but this, too, may change. And so, in a (not unlikely) scenario in which the modernization of the Russian economy slows even more and that of India speeds up, the foundations of Indo-Russian trade will finally crumble.