Oligarchs Woes

Updated: Nov 6 2003, 05:30am hrs
The political crisis that has recently enveloped Russia following the arrest of Mikhail Khodorkovsky, the countrys richest businessman and owner of the fourth largest oil company in the world, Yukos, is expected to impact on the countrys investment climate. Although the Russian financial markets have subsequently recovered to an extent, investor confidence in the countrys economic reforms has been shaken and could lead to a flight of capital from the country. The arrest itself is being seen as the result of a struggle between big business in post-Soviet Russia and the conservative elements in the Kremlin. Nevertheless, if dealt with judiciously, the crisis could present an opportunity for Indian business. Even before the Yukos affair, many of Russias big businessmen had begun to look for safer havens to park their investments to avoid any confrontation with the Kremlin. The current crisis could speed up that process. That the Russian government is well aware of this fact is clear from President Vladimir Putins recent statement that he was categorically opposed to any review of the privatisation process initiated in the 1990s.

Currently, Russias private sector presence in India is almost non-existent, with only one investment in a titanium oxide project in Orissa by Oleg Deripaska in the pipeline. The same goes for Indian investment in Russia, with very few private Indian companies present there. Despite the oft-pronounced close relations that exist between the two countries, bilateral trade volumes are an abysmal $1.3 billion, 60 per cent of which consists of Russian purchases made with Indias annual debt repayment. This, however, is scheduled to come to an end in 2005. With Prime Minister Atal Bihari Vajpayees upcoming visit to Moscow this month, a golden opportunity presents itself for Indian businessmen to enter that country and make up for opportunities missed out during the earlier period of privatisation. However, this would require some fast-tracking by the bureaucracy on both sides. For instance, the existing hurdles in banking (India does not recognise Russian bank guarantees) and transport facilities need to be sorted out. Though the State Bank of India-Canara Bank have opened a branch in Moscow, the scope exists for financial intermediation on a bigger scale. The lack of information regarding the Russian market and investment climate is also a deterrent. As the Russian ambassador to India, Alexander Kadakin, recently said, Moscow reposes enormous trust in India, not shared with any other country in the region. Its time to exploit the benefits of this mutual relationship.