Putin Russia In Perspective

Updated: Nov 29 2002, 05:30am hrs
Two and a half years after his previous visit, Russian President Vladimir Putin will be back in India next week, testifying to the durability of a trusted friendship. With few other major powers in the world, does India feel more comfortable than with Russia. Yet, with few other major powers is Indias economic relationship so badly off as it is with Russia. Can India and Russia sustain their longstanding and trusted friendship without a strong economic foundation Difficult.

While concerns about national security and the dynamics of geo-politics continue to shape relations between nations, business and economics have moved centre stage in international relations. India and Russia have similar security concerns: they worry about terrorism, about national integrity, about the global imbalance in the distribution of power in a unipolar world. They have an enduring pact in defence cooperation and India continues to depend on Russia for critical defence equipment.

However, neither shared security concerns nor periodic defence purchases can hope to restore the warmth between the two that was once palpable unless both countries are able to rejuvenate a fading economic relationship. More to the point, bilateral relations in todays world are increasingly defined by people-to-people interaction, both business and social, and less so by the needs of the State and the whims of politicians in office.

In 1990, the region now dubbed the Confederation of Independent States (CIS) accounted for over 16 per cent of Indias exports. By 1993 this share collapsed to 3.3 per cent, a catastrophic decline in bilateral trade from which neither has yet recovered. Russia today accounts for a mere 2.58 per cent of Indian exports. The United States (US) was behind CIS with a share of 14.73 per cent. Greater China (mainland plus Hong Kong) accounted for just 3.39 per cent of Indian exports that year. By 2000, while Russias share in Indian exports was down to a mere 2.5 per cent, that of the US increased to 22.8 per cent and of Greater China to 8.25 per cent.

Apart from political uncertainty and the disruption in the functioning of the Russian economy after 1991, the collapse of the special rupee payment arrangement with India also contributed to the sudden attrition in the extent of Russias business interaction with India. The increase in Indias share of world trade from around 0.5 per cent in 1990 to 0.8 per cent by the end of the decade was almost entirely due to an increase in Indias exports to the US, on the one hand, and to industrialising Asia (ASEAN and China in particular), on the other.

So marginal has Russia become to Indias export strategy that the Union commerce ministrys Medium Term Export Strategy, 2002-07, does not even discuss Indias exports to Russia as a separate subject, as it does the trade with the US, European Union and Japan. The export projections for 2002-07 forecast a 14 per cent growth in Indian exports to the Americas, 17 per cent growth in trade with Africa, 8 per cent growth in trade with western Europe and 6 per cent in the case of eastern Europe and Russia.

Interestingly, the export forecast for Russia is not based on decadal record in 1990s, as in other forecasts, but on more recent trends because the Russian economy has bottomed out and is on a recovery path. President Putin has been able to turn Russia around and last year it recorded an impressive 5 per cent rate of growth. If India-Russia bilateral economic relationship has to be strengthened, the past cannot be a guide to the future. The time is ripe for some fresh thinking.

There are many ideas in the air. Russia has agreed to reinvest part of the rupee debt owed by India to the Soviet State in India and is therefore looking for opportunities in the privatisation programme. Resolving this issue can liquefy the relationship a bit. The Russian aluminum company, RusAl, hopes to be able to pick up some stake in Nalco. There are other public enterprises that Russian companies may be interested in and we should enable that investment to come in, both because of past Russian commitment to Indian industrialisation and, more importantly, because in many cases Russian companies can bring both new technology and access to new markets with new investment.

Going beyond trade, there are many business opportunities opening up in Russia. Gutsy and risk-taking Indian entrepreneurs have made it big in the Russian market in recent years in businesses ranging from pharmaceuticals to tyres and from restaurants to steel mills. However, Indian business is up against two hurdles in the resurgent Russian market. First, competition from cheaper Chinese goods, and, second, the weakness of Indian brands.

The competition from China can in fact be overcome if Indian companies pay greater attention to product quality because, unlike in the western market where Chinese goods are mostly imported by western multinationals that have set up production bases in China, the Russian market gets goods made by Chinese firms all of which are not necessarily of good quality. The Made in China brand is, therefore, not yet as strong in the Russian market as it is in the US market. This offers an entry point to better quality Indian goods.

Some Indian companies have started exploiting this opportunity. Mahindra and Mahindra will be selling Scorpio in the Russian market. Many other Indian companies have set foot in Russia but have not been aggressive enough. The window of opportunity now available may get closed when cheaper Chinese goods come better made.

Energy, science and technology and education and culture are also areas where more cooperation is possible if both sides are more imaginative. Despite its economic decline, Russia still has a huge pool of well qualified engineers and scientists, many of whom are being employed in the US and in China. For an entire decade we have failed to make use of this resource.

While the US, EU and Japan will remain Indias more important economic partners for a long time, there is much potential in India-Russia business and economic relations waiting to be tapped. However, political summits and defence deals no longer bring nations as close as business, tourism and cultural interaction can. Indias people-to-people contact with Russia lags woefully behind its potential and language and the mountains are not the only barriers.