Expert Jayant Krishna EXCLUSIVE: Can Modi-Putin Fix BIG India-Russia Trade Deficit?

1 week ago

In this EXCLUSIVE interview with CSIS Senior Fellow Jayant Krishna, explore the India-Russia ties amid a massive $63 billion trade deficit favoring Russia in 2024, up from $3.4B in 2020. See a discussion on boosting Indian exports like textiles, farm products, shrimps, and pharma to Russia's vast market, while navigating non-tariff barriers, US sanctions on crude oil imports, and rupee-ruble payment hurdles with reluctant Indian-origin banks. Get insights on attracting Russian FDI under Make in India, co-producing S-400 upgrades, Su-5 jets, small modular reactors, plus workforce migration to fill Russia's skill gap. Will Modi-Putin summits deliver workarounds for balanced trade? Watch full discussion on economic cooperation despite Western pressures.

Transcript

00:00So joining me today is Mr. Jayant Krishna. He's a senior fellow at the Center for Strategic and

00:18International Studies. And he's joining me to have a discussion on the economic cooperation

00:24between India and Russia. So Jayant Krishna, first of all, we all know that the relationship

00:29both the countries share. It's rock solid. We have seen it's very reliable. It's very steady

00:35amid all sorts of global situations, all sorts of pressure from Western side. But when we talk

00:42about the economic ties between both the countries, we see that there is a huge amount of trade deficit

00:47and it is skewed in Russia's favor. If we want to work towards improving that, what all areas can

00:55Russia scout for and India can look to export in the Russian markets?

01:00Yeah, absolutely. So if you look at, you know, both these countries and their GDP rank by purchasing

01:07power parity, right? You know, we are already the third largest economy by purchasing power parity.

01:12Otherwise, we are the fourth largest, right? And Russia is fourth largest by purchasing power parity,

01:17right? So these are two great economies, big sized economies. And, you know, and Russia's

01:25geography, geographical spans is so huge, right? You know, but the fact is that, you know, on the

01:32export front, I mean, the export of Indian products to Russia, on that front, we have we have had a

01:36miserable performance since last several years. It's not a new development at all. I mean, just to tell

01:42you that, you know, the trade deficit in favor of Russia and against India, which used to be about

01:48$3.4 billion in the year 2020, has galloped to as much as $63 billion last year, that full year that

01:57we have the data of 2024, you know. So I think this is something we need to look at more deeper. If

02:05we all know, India imports lots of products from Russia, you know, beyond the military equipment

02:15and so on and so forth. We are, you know, one of the largest importers of crude oil from Russia,

02:23right? I mean, of course, there's been sanctions on those two companies by the US. So I think,

02:29you know, in these discussions, we would know whether the crude oil import from Russia that India

02:34does, will remain at the old level or will it go down? I think that's something which needs to

02:39be looked at. Other than that, I think India imports fertilizers, edible oils, you know,

02:45these kind of things from Russia, you know. Whereas if you look at what we export, India exports to

02:52Russia, I mean, there's not a single product category which has a critical mass, right? It's a

02:57very, very small stuff, right? And you know, what I understand, you know, bulk of the issues which are

03:04open, which are not tariff issues. Yeah. Unlike the US, you know, where India is facing, you know,

03:1150% tariff on most of the products except the exempted ones, you know. But with Russia, the tariff

03:18barriers are not significant, not very huge. But non-tariff barriers in terms of, you know,

03:26allowing some of the Indian products to be exported to Russia. I mean, there are standards,

03:31stipulations and many other regulations. I think that need to be ironed out. And India has to throw

03:39open, you know, it's, I mean, Russia has to throw open and have give greater market access, you know,

03:45for products from India to be exported to Russia, you know. Categories, since you talked about,

03:52in my mind, the categories which are very, very important, you know, are textile and garments,

03:56you know, if India is exporting to the rest of the world, why not to Russia as well, you know.

04:02Other category, you know, India has emerged as a significant exporter of farm products, right?

04:07You know, and Russia has, you know, its population is about 14 crore, you know. I think that's another,

04:17there are lots of mouths to be fed there as well. And I think that's one area where, you know,

04:24we need to get market access. Shrimps and other marine products in the fishery category,

04:31I think that's another area where India can start exporting because Russia is a huge shrimp consuming

04:36country, you know. Pharmaceuticals, you know, even US could, did, kept pharmaceutical outside the 50%

04:44tariff barrier, you know, because it is very, very critical for US to export pharmaceuticals from India.

04:50And then there is no reason why India shouldn't export pharmaceuticals to Russia as well, you know.

04:55So, I think these four categories are very important to my mind. And, and slightly moving away from trade,

05:03I think one area which is very, very important is Russia is a, is a, is an aging economy, right? I mean,

05:09the, the, the median age of Indian workforce is about 29 years. And in Russia, it is very,

05:16very significantly higher than that, you know, kind of a thing. And, and also Russia faces huge amount

05:21of skill deficit. The data that I've been hearing in the last couple of days since President Putin's

05:27visit, you know, took shape, you know, Russia has, needs almost half a million, which is, you know,

05:37which is a, which is a huge set of number of people, almost 5 lakh people, they want to, to, to go and work there.

05:45So, I think, you know, in this discussion that Prime Minister Narendra Modi and Russian President Putin will have,

05:51I think they should talk about, you know, immigration issues, you know, and, and so on,

05:56so forth. It will help both the countries.

05:58You mentioned that the trade deficit, which is there between both the countries,

06:03it is not related to tariffs. So, what are regulatory restrictions are these countries facing?

06:09Is it because of the sanctions? Or is it something which is post 2022? Or has it always remained like

06:17this? I think the single biggest contributor has been, you know, the sanctions which were imposed

06:24by the US and some other European countries, when Russia invaded Ukraine in the year 2022, right, you know,

06:33So, we have to operate within the framework of those sanctions and look at, you know,

06:38do they hurt us while, when it comes to exporting Indian products to their country, to Russia or not.

06:44And also, Russia has some category restrictions also, from what I understand, you know, I mean,

06:50like certain product categories can't be exported or they have to go through a lot of due diligence

06:55and standards have to be met and so on and so forth. So, I think, you know, these kind of barriers

07:01need to be looked at. And, you know, if India could export many of such products to the rest of the

07:05world, you know, why not to Russia itself? But India will have to face competition because

07:10China over the years has flooded Russian market with lots of its products, right?

07:15So, India will have to, I mean, it's not just a market access issue. We need to be competitive also

07:21with Chinese products which are already available in Russia in abundance, you know.

07:25So, I think that's fair because export market is all competition driven and, you know, and

07:31I'm sure India will find its own space, its own areas of advantage, you know, where, you

07:40know, I think these exports to Russia should be feasible to my mind, you know.

07:45There's also a gap between a difference between the foreign direct investment between both the

07:50countries. We see a lot of Indian companies investing in Russia, but it's not happening

07:55the other way. What can we do to increase that?

07:59So, I think, for some reason, Russian businesses have not looked at India as a major source of,

08:07as a major country where FDI can come in, right? You know, one reason could have been one of

08:13the Russian companies, you know, when their 2G license was cancelled in India, you know,

08:17after they had made some investments and so on and so forth. So, I think they may have some

08:21bitterness, but that's a long old story, right, kind of a thing. I think Russia has to look

08:26at India's ease of doing business, has improved our rank, which used to be 120th, had jumped

08:32to 63. And now, last couple of years, this ranking has not happened. I'm sure it would

08:36have jumped further. I think this is very important. Another thing, you know, where India as a country

08:42needs to look at, and not just with Russia, whether it be US, the European Union, and so

08:49on and so forth as well, that, you know, we have to ensure that there's a regulatory certainty,

08:56right? You know, you can't have a certain set of policies and regulations in place when somebody

09:03decides to make an investment and change it mid-course, you know. I think that hurts the

09:09sentiments of overseas investors quite a lot. And, you know, one, these things are there

09:14and, and, you know, you know, I think there are lots of areas where Russian businesses could

09:21invest in India. And I see this, I think last, more, the problem is our ties, since, you know,

09:31historic times, you know, have largely been focused on defense, right? I think, and last few years

09:37since Russia agreed to supply crude oil to India at a, at a rate, at a price much lower

09:43than the other countries, oil exporting countries, I think that area has gone to that as well,

09:49right? So it has, I think India has never really explored and showed that hunger to get Russian

09:54investments, which I'm sure would start now. And, and even, even some of the, you know, defense

10:02products, you know, like S-400 upgrades, which are S-500, you know, you know, not just importing

10:09them, but co-producing, co-manufacturing them with Russia in India. I think that's very important.

10:15Even Sukhoi, fifth generation aircraft, you know, those could be manufactured in India.

10:19You know, I think, you know, small and modular nuclear reactors, I think nuclear submarine,

10:25you know, there are lots of areas where India could explore that, you know, rather than just importing

10:29from there, you know, could, could there, could, could FDI come here and we co-manufacture

10:34that in the country itself, you know, under Make in India initiative and even otherwise,

10:40you know, I think that's, that's very important.

10:42Sir, you mentioned oil. We, we have already seen that there has been a significant dip and we might

10:48see another dip happening in the month of December. Long term, how do you see this trajectory going?

10:53Will we see some sort of uptick in this or will it continue to decline?

10:59I think it's anybody's guess, you know, if you look at with the sanctions imposed by the US

11:04against the two Russian oil companies from which we used to, you know, import crude oil.

11:11I think initially the public sector companies, oil companies in India, you know, they, they went slow

11:17on, on importing. But, but if you look at the November data, you know, November data was,

11:24you know, we imported more crude oil from Russia than what was there a month ago.

11:28But some dip is expected down the line, unless, you know, when the Prime Minister Modi and President

11:35Putin discuss, they figure out modalities and some arrangements through which, you know,

11:41is there any way to circumvent these sanctions and oil, you know, import it at any other price?

11:45Let me tell you, it makes a lot of business sense for India to import oil from Russia,

11:52given the rates that we get, you know, and it, it, it helps India in, you know, not only in the balance

11:58of payment matters, but also in available in making available a cheaper oil to, you know, to,

12:06to Indian, you know, individuals as well as businesses, you know, I think. So I think it's anybody's guess

12:12what happens. I'm sure during these one and a half days talks in Delhi, you know, there'll be

12:19discussions on, on how to keep importing, you know, you know, you know, without major violations,

12:27you know, taking cognizance, cognizance of these sanctions, but yet some workarounds could be,

12:33could be found to keep importing. Because as I said, the, the, the prices we get from Russia for

12:38crude oil are much lower than, you know, other oil exporting countries, you know.

12:43We know that a lot of deals, a lot of transactions are also done in rupee, ruble.

12:48How reliable this mechanism can be? Because I read reports where a lot of multinational banks

12:55of Indian origins, they refuse Russian payment because of the sanctions, potential sanctions

12:59they could face in other countries. 90% of the deals right now are happening in rupee and ruble

13:06payments. What do you think will be the future of this? We have already seen discussions happening

13:13that BRICS can be an alternative. Do you see anything immediate happening? Though Putin has

13:18already ruled out that we cannot see anything immediately happening. But what are your thoughts?

13:24See, this is a contentious issue. I mean, if you look at BRICS, at the BRICS forum, there have been

13:30discussions on de-dollarization and so on so forth, you know, and how do we create a, so I think it's

13:35not that easy kind of a thing. Yes, there are issues about stability of the Russian currency and so on

13:44so forth. You know, one Indian business would like that all these things shift to dollar, you know,

13:49and we do dollar trade between the two countries, right? But, but, you know, it remains to be seen,

13:56you know, how these discussions go. And in near future, I don't see any major changes in the,

14:03in the way, you know, currencies operate, you know, in trade between these two countries.

14:09But, you know, a more stable arrangement would be to do it in dollars, to my mind.

14:19But, you know, a more stable meeting, a more stable arrangement would be to do it in dollars.

Expert Jayant Krishna EXCLUSIVE: Can Modi-Putin Fix BIG India-Russia Trade Deficit?

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