Three major obstacles prevent Moscow and Delhi from boosting their economic cooperation: a lack of a formal trade and economic partnership, inadequate trade architecture and transport and connectivity bottlenecks.
Russia's Prime Minister Dmitry Medvedev (second from the right), India's Commerce and Industry Minister Nirmala Sitharaman (third from the left) and Russia's Industry and Trade Minister Denis Manturov (center background) at the 2016 Innoprom International Industrial Trade Fair in Ekaterinburg, July 11, 2016. Photo: TASS
On Oct. 15-16 Russian President Vladimir Putin will travel to India to participate in the annual BRICS summit held in Goa and discuss bilateral relations with India on a range of issues, including cooperation in the areas of defense, security, trade and investment. Despite the long history of friendship between the countries, it remains to be seen whether Russia and India will be able to rethink their economic ties, which currently leave much to be desired.
At first glance, the official framework for economic cooperation has been developing since the signing of the “Declaration on the India-Russia Strategic Partnership” in October 2000. With enhanced levels of cooperation in almost all areas of the bilateral relationship including defense, security, science and technology, political, culture and trade and economy, the bilateral ties have acquired a qualitatively new character. This "Strategic Partnership" was upgraded to the "Special and Privileged Strategic Partnership" in December 2010 during the visit of Russian President Vladimir Putin to India. The “Druzhba-Dosti” Vision was signed in December 2014 for strengthening the Indian-Russian Partnership over the next decade.
However, despite these pronouncements, the Indian-Russian trade and economic linkages remain weak. Total bilateral trade is about $6.7 billion (2015), which is extremely low. For both countries, the role they play in each other’s trade is also very low. While Russia makes up just 1 percent of India’s total trade, India accounts for only 1.2 percent of Russia’s overall trade (2015-2016).
Similarly, the two-way investment links are also miniscule. This is when both sides have enormous untapped potential in the realms of trade, investment and overall economic cooperation. Recognizing this, both countries have set a target to raise bilateral trade to $30 billion by 2025, and raise bilateral investment from $10 billion to $15 billion.
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The question is how to achieve these bilateral economic targets. For this, major constraints on the current economic linkages need to be clearly delineated. Moreover, recommendations to address them have to be made, complete with follow-up measures of implementation. This is because, more often than not, policy intentions, targets, and recommendations do not yield the desired results due to a lack of implementation.
The major constraints acting on the trade and economic relations between the two countries include the following:
- A lack of formal, comprehensive trade and economic partnership agreements with the aim of augmenting trade in goods, trade in services and investment and technology flows;
- Inadequate architecture for facilitating trade; and
- Transport and connectivity bottlenecks.
In order to address these challenges and realize the trade and investment targets that have been mutually set, India and Russia should take the lead in finalizing the India-Eurasian Economic Union (EEU) Free Trade Agreement (FTA), encompassing trade in goods, trade in services and investment, which would serve as a catalyst in enhancing the levels of economic linkages - not just between India and Russia, but also in a wider context of the Eurasian region.
There is a need for adopting an integrated approach whereby trade in goods is viewed in conjunction with trade in services and investment. This is because the full potential of any one of these is not possible to harness unless the inter-linkages across these three dimensions are fully understood and expedited through adequate policy responses such as the proposed FTA.
The second major impediment is the lack of proper trade facilitation infrastructure. The work on logistics and trade infrastructure will make trade and economic cooperation faster and the ‘Green Corridor’ project between India and Russia is a step forward in this direction but it needs to be expedited.
The main advantage of the 'Green Corridor' is that goods being transported by entrepreneurs will not have to undergo customs inspection and examination when crossing the border. This entails implications for procedures with respect to various dimensions such as documentation, samples and specimens. The mechanism ensures an electronic pre-declaration issued for the cargo, whereby a unique individual number is assigned in accordance with a "Green Corridor" registry. The consignments are passed at customs check points without inspection, saving considerable time, without compromising on due diligence. It is recommended that such a facilitation mechanism is extended to the Indian-Eurasian economic landscape as well.
Thirdly, yet another well-known major challenge in enhancing trade and economic cooperation between the two sides lies in the area of connectivity. Poor connectivity between the two countries results in substantial financial costs and unwarranted delays. This assumes particular significance in the context of energy transportation and perishable goods, at a time when both are essential domains of trade. Poor connectivity thus constrains the sheer number of products that are actually possible to trade. The proposed International North South Transit Corridor (INSTC) project could well be the answer.
The INSTC is a multimodal transportation route connecting the Indian Ocean and Persian Gulf to the Caspian Sea via Iran, and onward to northern Europe via St. Petersburg in Russia. The INSTC envisages movement of goods from Mumbai (India) to Bandar Abbas (Iran) by sea, from Bandar Abbas to Bandar-e-Anzali (an Iranian port on the Caspian Sea) by road, from Bandar-e-Anzali to Astrakhan (a Caspian port in the Russian Federation) by ship across the Caspian Sea, and thereafter from Astrakhan to other regions of the Russian Federation and further into Europe by Russian railways. The recent move to build and develop the Chabahar port in Iran becomes crucial. This will open a lot of opportunities for India as it will enhance India’s trade and investment linkages with Eurasia and Central Asia. It will reduce the cost of transportation of goods and transit time from India to Eurasia and surrounding regions, as suggested by several studies. The INSTC is relevant not only in the context of India-Russia economic partnership but also in the wider context of the India-EEU FTA.
In sum, India-Russia economic relations can be scaled up in the context of major pronouncements. The targets can be met. For this the major challenges have been identified and the policy recommendations made. The challenge, though, is to implement at a fast enough pace.
The opinion of the authors may not necessarily reflect the position of Russia Direct or its staff.