India-Russia agreements: Meeting of minds must now translate into better business

The 70-year-old India-Russia relationship must evolve from strategic partnership to beyond. On Russia Day, Pankaj Joshi evaluates the relationship between both countries

The strategic importance of Indo-Russian ties is irrefutable. It has survived political eras, ideological changes, economic transformations and international realignments. This relationship is more strategic than commercial right now, though this is an important factor and there is no doubt that greater economic interaction would make much more of a difference. However, the economic sanctions that are imposed on Russia, at varying levels and at intervals, over the past four-five years have had their impact. The tables alongside emphasise the limited impact that both economies have on each other.

Against that, it must be stressed that the current leaders of the respective nations have a mutual comfort level that is admired and envied. This has manifested itself in different ways which includes informal meetings on a yearly basis. The latest was at Sochi, a city on the Black Sea coast. This informal meeting lasted less than a day. Despite the fact that the information made available to the media was limited, there are statements that suggest that economic cooperation was definitely a strong item of discussion. In that context, the Confederation of Indian Industry released some data on its blog, which indicates that things may be getting better. The CII holds that Indian exports to Russia for FY2017 were around USD 1.9 billion, whereas imports went up to USD 5.7 billion.

India-Russia agreements: Meeting of minds must now translate into better business
India-Russia agreements: Meeting of minds must now translate into better business
India-Russia agreements: Meeting of minds must now translate into better business

Defence – hit hard
Sanctions have impacted a strategic area—defence—which has been a cornerstone of Indo-Russian relationships. India is a large buyer of military hardware. According to think tank Gateway House, it is estimated that between 2012 and 2017, India sourced two-thirds of its total USD 22.4 billion weapons imports from Russia. This shows just how vital is Russia as a vendor, in terms of size, sustainability and strategic importance. Keeping this pipeline open is of vital importance.

The recent CAATSA (Countering America’s Adversaries through Sanctions Act) specifically targets Russia, apart from Iran and North Korea. This is a major obstacle on the international stage, more so when the current Indian government is seen to be improving its ties with its counterparts in Europe and USA. Sector observers agree on two points – firstly there has to be a window created wherein defence deals with Russia get sanction waivers. It is getting increasingly acknowledged that a strong India is essential for a stable Indo-Pacific region and this negotiation point must be leveraged. It may not be easy because other nations would be equally happy to collaborate with India, given its top-of-the-table status in defence procurement. However, if technology transfer is kept as a precondition, then there is much comfort with Russia. Secondly, India has proposed a strategic partnership model for long-term partnerships in defence businesses which has enthused many domestic business groups. The key element in this model is preference to more indigenised inputs in the final product and that must now be kept at the centre of all discussions. While large Indian groups have many overseas business interests, public sector entities do not have such business structures and hence they could be at the forefront of future defence joint venture agreements.

Interruptions in the military programme would be disruptive, though it cannot be emphasised that a Gorshkov-type situation should never be allowed to recur. Here the government viewpoint is very pertinent. Over the years, cooperation in the military technical sphere has evolved from a purely buyer-seller relationship to joint research, design development and production of state-of-the-art military platforms. Production of the Brahmos cruise missile is an example of this trend. The two countries are also engaged in joint design and development of the Fifth Generation Fighter Aircraft (FGFA) and Multi-Role Transport Aircraft. In that context, the recent visit by the Defence Minister Nirmala Sitharaman would be key to giving the FGFA programme a proper structure and timeline. It would indeed be crucial at many levels. Clearly, sanctions are a short-term considerations in the Indo-Russian defence equation and are likely to be seen as such.

Gas— no lightweight matter
In spite of all this, increased trade is possible in energy. Just recently India commenced receiving gas supplies of LNG under a 20-year long-term agreement with Russian behemoth Gaazprom. This gas, priced at around USD 7 per British thermal unit, comes around 21 per cent cheaper than gas from Qatar, India’s oldest supplier and also cheaper compared to other supplier nations like the USA and Australia.

India is in the midst of moving away from coal, and gas is an eco-friendly option with usage in multiple areas— from power generation to manufacturing. India gets around 50 per cent of its gas requirements from imports. LNG is a commodity where Russia is a key global player (second largest producer worldwide). For India it is a great advantage. Gas is an area where lots of mutual investments have taken place over the past two-three years.

This arrangement and its significance, has another context. While renewable energy sources are the long-term solution (especially as capital costs fall), in the short and medium term there is nothing better than gas to replace fossil fuels like coal in a cost-effective manner and reduce carbon emissions in line with global agreements. Gas is an excellent intermediate step on the road to clean energy. Right now its capital costs are on par with coal-based facilities and cheaper than solar or wind. China, another large coal-based economy, has likewise focussed on gas to reduce its carbon footprint and has seen its LNG imports move up by 58 per cent in January-April 2018 on year-on-year basis. Therefore this development assumes much more importance beyond the economics. Likewise, another parallel area of cooperation is nuclear energy where small but significant accords have been getting done with Russia for the production facility at Kudankulam.

A new order needed
Among possible co-operation ideas is a trade agreement between India and the Eurasian region. Likewise, a transport corridor linking the region and India across Iran and Central Asia, has already been accepted as a good economic option, though the logistical details remain inconclusive. However, it is vital to understand that the economic interchange has now to go beyond defence and energy. Today, India and Russia contribute around 1 per cent of each other’s world trade. India and Russia are nations which are in the top five in terms of landmass. Surely, they can think of scalable opportunities of working together.

It is here that India could play a vital role. Russia would be understandably reluctant to engage China, in view of its track record of first sending labour and then talking of squatter’s rights. The Indian workforce is globally renowned for the following factors:

• Ability to fit into roles— from basic apprentice to company leadership
• Proven work ethics
• Ability to function across climates, continents, industries and even political environments
• Zero to negligible record of stirring up political trouble
• The ability to be a valuable economic and political constituency (as and when relevant)

This is indeed something to ponder over, especially when so many Indian companies have gone multi-continent in the past decade. There is a clear rational case for the comfort that both nations have to translate into greater economic collaboration. Russia has been closely associated with independent India over the 70-year history and now, over the next 30 years, would be the ideal opportunity to take matters to the next level. It is time for both sides to stop being reactive.

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