The Indian Prime Minister Manmohan Singh indicated during last July?s G-8 Summit in St Petersburg that he wanted to force the pace of Indo-Russian cooperation. The PM remarked that, ?The economic pillar of our strategic relationship needs attention, as at present it is not as strong as it should be.? He, and others, have also noted that both economies have been logging up good rates of growth, something that could lay the foundation for more substantive economic cooperation between the two. In trade, especially, the PM?s lament in July 2007 was that too little has been achieved: no more than an annual turnover of around $2-3 billion. That just was not good enough.
The bilateral trade figure has since been revised, and stood at $5 billion early this year. Also, that got noted during the Second Indo-Russian Forum on Trade and Investment in February, this year. But even that is much below potential. Other trade-inhibiting factors include credit risk, the high cost of Export Credit Guarantee Corporation (ECGC) cover, insurance and the Russian ban on farm imports. Meanwhile, it is reported that commerce is plagued by procedural hurdles (visa problem in particular) and that primarily is what has retarded the pace of expansion. Now, however, the two economies are working towards a target of ?$10 billion by 2010? in bilateral trade.
One may even say that they have been acting fast. February 13 saw them announcing the setting up of a joint task force to ensure greater, and smoother, flows of trade and investment. The agreement, reached during Russian PM Viktor Zubkov?s visit to India, aims to enhance economic relations, reaffirms strategic and defence ties.
At the head of affairs will be the trade ministers of both countries. It will be their brief to tackle all the issues that act as deterrents to bilateral trade. In February, Kamal Nath even identified growth areas by alluding to sectors with potential such as infrastructure, metallurgy, real estate and pharmaceuticals. Those should not only promote greater business and create a positive investment climate, but they will energise dormant investment prospects. Russian investors are expected to be attracted to the construction sector, which accounts for 40%-45% of total investment activity. The sector needs more than $92 billion of investment annually, and Russian construction companies, may join up with banks to participate in subcontracting tenders in Indian projects. India would gain from all the Russian experience in construction, road-building, and automation equipment and technologies.
Other sectors that are likely to attract Russian businesses are aircraft manufacturing, IT and farming. Co-operation is already an on-going process in sectors like plant biotechnology, fruit and vegetable processing, livestock breeding, afforestation, the establishment of poultry farms and gardens, construction of irrigation facilities, development of new types of fertilisers and pesticides, production of agricultural machinery, and the creation of new types of agricultural species. The mining sector has possibilities too. An agreement was signed on the establishment of a Russian-Indian venture to produce titanium during President Putin?s visit. The Russian banks and enterprises that will also be involved include Russia?s Vnesheconombank (VEB) and Technochim Holding, and India?s Saraf Agencies Private Ltd. A chemical and metallurgical unit that is to be built in Orissa, will annually produce 40,000 metric tonnes of titanium dioxide, 10,000 metric tonnes of titanium sponge, and 1,08,000 metric tonnes of titanium slag. Russia will hold 55% of the joint venture?s authorised capital and the project could meet 90% of Russia?s total titanium demand. As for the intent of going beyond trade, plain and simple, and concluding an agreement to cooperate in areas of mutual interest, the latter includes numerous new sectors. They are energy, oil and gas, transport, pharma, steel, mining, health and tourism. A bilateral joint study group has also been set up between the trade ministries of the two countries. Its task would be to examine ways to enhance bilateral trade and economic cooperation and facilitate the signing of a Comprehensive Economic Cooperation Agreement (CECA).
Moscow seems also to have targeted the tripling of the current levels of trade turnover, a step that clearly flows from the realisation that greater commerce will give a fresh impetus to inter-state relations. (Already, Russia?s trade with China is greater than $20 billion, and it is projected to be at $60 billion in the next five to eight years. A number of European countries that trade with Russia have bilateral transactions that are in excess of India?s by five times, or more.) But Russia needs India: the latter imported $2.99 billion worth from Russia in 2006-07, while it exported only $1.10 billion to it.
India has the upper hand in investments too: it had got only $94 billion in foreing direct investment from Russiabythe end of Marchthis year, while India?s investments in Russia came to $2.8 billion. Sectors that have been attracting the most investment from Russia include chemicals, telecommunications, and trading, and consultancy services. Now the next needed step is to de-bureaucratise trade and other exchanges to the benefit of both countries.