Russia’s Pivot To Asia – India

by Asia Investment Research

India’s Partnership/Deals with Russia: Keeping Options Open

With the Ukraine conflict about to enter its second month, Asian geopolitics have been turned upside down. India, along with several other Asian nations, has refused to get involved and has abstained from UN votes against Russia in recent weeks. The reasons for this are to do with recently improving trade and geopolitical relevance between the two countries.

In fact, India and Russia have recently signed more than two dozen deals across a variety of sectors. The 28 agreements concluded Russian President Vladimir Putin’s visit to New Delhi and meeting with Indian Prime Minister Narendra Modi during the 21st India-Russia summit in December 2021, which was based itself on previous meetings between the two countries foreign ministers, and Modi’s visits to Moscow, Sochi and Vladivostok over the past three years.

The deals cover a wide range of areas including trade, energy, science and technology, education, and intellectual property. India and Russia have also signed a program of cooperation in the field of defense for the next ten years, 2021 to 2031, and have also set targets for US$30 billion in trade and US$50 billion in investment by 2025.

Weapons

India’s foreign secretary said Russia has started delivering its long-range S-400 surface-to-air missile defense systems to India, based on a deal the two countries signed in 2018.

Putin’s December visit to India came at a time when both countries relationships with the United States were strained. The meeting between Modi and Putin demonstrated that India wants to keep its options open, according to Richard Rossow, the Wadhwani chair in US-India policy studies at the Center for Strategic and International Studies. “India is concerned about the reliability of the United States as a partner, not just in the defense space, but also about religious tolerance and human rights in India,” Rossow told CNBC’s “Squawk Box Asia”. “While I think they have a majority of their eggs in the United States’ basket, if you look all around — but on defense at least, where they need strategic technology — they want to make sure they keep options open,” he said.

Moscow, on the other hand, wants to ensure that no one country, including China, has hegemony across Asia, Rossow explained. “So, I think both have overriding strategic interests, irrespective of the relationship with the United States and others,” he added. In a joint-statement, India and Russia said they intend to “upgrade the defense cooperation, including facilitating joint development and production of military equipment, components and spare parts, enhancing the after-sales service system, progress towards mutual recognition of quality control and regular joint exercises of the Armed Forces of the two countries.”

Russia is still one of India’s largest arms suppliers. Around 23% of Russian arms exports between 2016 and 2020 went to the South Asian country, according to a report from the Stockholm International Peace Research Institute. Foreign Secretary Shringla has stated that Russia has started delivering its long-range S-400 surface-to-air missile defense systems to India, based on a deal the two countries signed in 2018. “Supplies have begun and will continue to happen,” he said, adding, “It is important to note that, whether it is us or Russia, we conduct an independent foreign policy and I don’t think we need to look at our relationship in the light of any other relationship that is there. ”

But this partnership could potentially lead to sanctions from the United States under a 2017 law aimed at dissuading allies from purchasing Russian arms. The two countries have also signed a deal to locally manufacture more than 600,000 Russian AK-203 assault rifles in India. In recent years, India has stepped up its purchases of military equipment from the United States, but a majority of its defense inventory is still of Russian origin. Last year, the US signed a deal with India that would allow New Delhi to access US satellite data crucial for targeting missiles and other military assets.

India’s Foreign Secretary Harsh Vardhan Shringla said the two countries had signed other investment packets, including deals on steel, shipbuilding, coal and energy. He added that a 2018 contract for the S-400 missile systems was currently being implemented. Putin traveled to India with Russia’s defense and foreign ministers in a visit that saw the two countries reinforce their ties with a military and technical cooperation pact until 2031 and a pledge to boost annual trade to US$30 billion by 2025.

Russian oil company Rosneft said it signed a contract with Indian Oil to supply up to 2 million tons of oil to India by the end of 2022. The countries also signed a MoU for Russia to send an uninterrupted supply of coal to India to support its steel production, among other deals. Putin and Modi also discussed the situation in Afghanistan, voicing their commitment to ensure that the country will never become a safe haven for international terrorism.

Energy

India is also negotiating investments of between US$2-3 billion in Russian oil and gas exploration and production projects with the Russian government, with Moscow offering several oil and gas fields to India’s natural resources exploration firm ONGC Videsh and to any potential consortium it may form for the project.

The countries are also in talks over India’s investment in oil and gas exploration projects in the Arctic, including the development of the Vostok Oil project. The project’s annual crude production could be up to 100 million tons, according to preliminary estimates. Three Russian Far Eastern regions, namely Yakutia, Sakhalin Oblast and Amur Oblast, have so far shown interest in investment by India in their oil and gas sectors, with continuing negotiations.

Russia has asked India to increase its investments in the sanctioned country’s oil and gas sector, as well as to develop Russian companies’ sales networks in Asia’s third-largest economy. Since the Ukraine conflict broke out, Russian oil producers are offering a 25-27% discount on dated Brent crude prices. Rosneft, Russia’s state-owned oil company, is already one of India’s largest crude suppliers, and together with the Indian Oil Corporation signed a contract for the supply of up to 2 million tons of oil to India through Novorossiysk Port on the Russian Black Sea by the end of 2022. That would be accessible via the INSTC.

India has been attempting to diversify its oil import sources away from the Middle East by turning, in part, to Russia. Discounted oil will clearly be a blessing for India’s economy at a time when global crude prices have risen to their highest levels since 2008.

Shipbuilding and the Northern Sea Passage

Fertilizers & Free Trade

India has also shown interest in potential for shipbuilding activities in Vladivostok and Gujarat in Western India for design and building of the next generation of oil and gas tankers. Prime Minister Modi was the chief minister of Gujarat from 2001 to 2014, with the area having shipbuilding yards with an eye on not just Arctic capable shipping but also to service the International North-South Transportation Corridor (INSTC) requirements. The INSTC is a Suez Canal alternative route running maritime from Mumbai to Iran then multimodal north through Iran and onto Caspian Sea Ports to both Central Asia, the Caucasus and Europe. This ‘Southern’ route is likely to prove popular as it allows goods transit from the EU to Asia without the need to transit via Russia. India has also established the Vladivostok-Chennai maritime corridor with extensions through to Mumbai with India and Russia collaborating on Indian Ocean transportation routes to supply

India and Southeast Asia with LNG supplies from the Yamal fields in the Russian arctic – along the Northern Sea Passage.

India has also shown interest in sourcing organic fertilizers from Russia, an interesting development in view of the fact that New Delhi has stated its intention for India to develop as a major grain and wheat exporter given disruptions to the global supply chain created by the Ukraine conflict – Both Russia and Ukraine are major wheat suppliers. India is rolling out measures during 2022 to try and take advantage including ensuring that government approved laboratories adequately test the export quality, making additional rail wagons available, and working with port authorities to give priority to wheat exports. India has an advantage of surplus stocks at home and a sharp rise in global prices. So far, the organization appears to be on track. Indian wheat exports picked up in 2021 to reach 6.12 million tons, up from just 1.12 million tons the previous year. A 2022 target is believed to be the export of 10 million tons of wheat after the new season harvest in June/July.

India has also been in discussions with the Eurasian Economic Union (EAEU) trade bloc, of which Russia is responsible for about 90% of all trade. The EAEU also includes Armenia, Belarus, Kazakhstan, and Kyrgyzstan. An EAEU FTA agreement would be useful for India as it is unlikely Indian manufacturers supplying the domestic market would endure serious competition in their own backyard from Russian exporters, a fear that led to India pulling out of the RCEP agreement in 2020 following concerns about Chinese exporters competing with India’s domestic manufacturers.

This article has been extracted from the upcoming issue of Asia Investment Research, available from this Thursday. The issue deals with Russia’s Pivot to Asia and includes insights into bilateral trade and geopolitical advances with China, Iran, Turkey, Saudi Arabia, the UAE, Central Asia, the Eurasian Economic Union, India, Pakistan, ASEAN, Japan and South Korea and illustrated how Ukraine is a component part of a far wider geopolitical struggle between the East and West. Purchase price is at readers discretion – all proceeds will go to Ukrainian childrens charities. Obtain your copy here

Current Geopolitics

India has been supportive of Russia during the Ukraine conflict and has either abstained or voted against various anti-Russia votes put forward at the United Nations. Washington has threatened sanctions, but at present these would probably represent a step too far for global market stresses. The two countries have also declared an interest in developing non-dollar payment mechanisms and establishing ruble-rupee payment corridors. Another interesting dynamic is that Pakistan, traditionally an Indian foe, has praised India for its Russia stance and has also aligned itself with Moscow – a rare example of India and Pakistan sharing similar regional interests.

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About Us

Russia Briefing is written by Dezan Shira & Associates. The firm has 28 offices throughout Eurasia, including China, Russia, India, and the ASEAN nations, assisting foreign investors into the Eurasian region. Please contact Maria Kotova at russia@dezshira.com for Russian investment advisory or assistance with market intelligence, legal, tax and compliance issues throughout Asia.

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