Many commentaries about New Delhi’s position on Moscow’s invasion of Ukraine have rightly focused on two factors: (1) India’s dependence on Russian military products and, less commonly, (2) India’s dependence on energy cooperation with Russia. The most significant aspect of their collaboration in the field of energy is the assistance that the Russians are offering to Indians in constructing nuclear reactors. However, over the past several months, a new side to this energy cooperation has been New Delhi’s growing purchases of Russian oil.
And yet, in this piece, I would argue that overall Indo-Russian trade stands on clay feet. Rather than being a deep and wide dependence and an economic anchor to political relations, this bilateral exchange is more a shadow of the Cold War past and a testament to the narrow offerings of the Russian economy. While at the moment we tend to focus on New Delhi’s political refusal to condemn Moscow, in purely economic terms it is clear that India is attracted to markets beyond Russia.
Let me start with general data, especially when trade with Russia is compared with exchanges with other countries. In 2020, Indian exports to Russia amounted to a meager 1.1 percent of India’s total exports – and that was a high point. The figure was 0.77 percent in 2018, 0.83 percent in 2017, 0.81 percent in 2016, 0.70 percent in 2015, and so on. Imports from Russia are unimpressive too: In 2020, 1.6 percent of Indian imports originated from Russia, as compared to 1.41 percent in 2019, 1.38 percent in 2018, 1.53 percent in 2017, 1.57 percent in 2016, 1.32 percent in 2015, and so on. These import statistics do include the crucial transfer of military products, hidden under more general categories like “other sea vessels,” “explosive ammunition,” or sometimes simply “unspecified” products.
The components of this trade also show that military products aside, it is mostly based on goods with little added value. Within Indian exports to Russia, the biggest category by far has been packaged medication. Apart from military products, Russian exports to India, in turn, have been dominated by raw materials and energy resources, such as diamonds, crude oil, coal briquettes, silver, and copper. The three significant exceptions to this in the group of products of highest imported value from Russia are nuclear reactors, gas turbines, and potassic fertilizers.
My reasoning can be met with at least two counterpoints: First, that the annual trade volume will greatly increase once 2022 ends, given rising imports of Russian oil, and, second, that the value of trade as such is not enough to assess the significance of purchasing military products and energy resources. These two categories have strategic, and not just economic, value.
As for the first point, oil imports from Russia have indeed seen a surge over the past several months, and this is confirmed by the Indian Ministry of Commerce and Industry data. We are no longer talking of single purchases of 1 million barrels, and then 3 million of them, which were revealed in the first months of the war. In fiscal year 2021, in the April-August period, the value of all petroleum products imported from Russia to India was $1.7 billion, while in the same period in 2022, that value was $13.7 billion. This may mean that once the annual data are available, Russia will rise from being a marginal provider of oil to India to one of the major ones (and a larger importer to India as such). And yet we should place such developments within longer trends.
It is unlikely that Russian oil will be a crucial component of Indian imports of energy resources for years to come. There is a reason it did not hold this status in previous years: the long sea route that oil tankers need to take between Russia and India is reflected in the shipping price. India has traditionally bought much more oil from closer countries in the Middle East and Africa. The current attractiveness of Russian oil for India must therefore stem from the fact that Moscow is offering a huge discount. This is certainly beneficial for New Delhi (otherwise India would not have been buying), but likely the deal is only beneficial for Russia as a temporary, and desperate, measure. Having suffered considerable economic losses and the freezing of many of its foreign assets, Moscow is looking for quick income. Yet, I doubt whether the Kremlin would be willing to retain a special price for India in a course of, say, five to 10 years.
The second counterpoint is more important and valid, however. Buying weapons and oil is not the same as purchasing clothes or toys. Indian imports from China are many times higher than those from Russia, but many of the products purchased from the PRC do not have strategic value (though some do). China and the United States are India’s two largest trade partners, but Moscow remains the biggest source of military products used by the Indian armed forces. This factor will undeniably remain the backbone of Indo-Russian relations for years to come.
And yet even here, the same general conclusions apply: The Russian economy is increasingly backward when compared to Western economies, while India is more and more in need of value-added products and those based on more advanced technologies. Moreover, New Delhi would ideally like to attract foreign direct investments that would allow a transfer of knowledge so that finally the same goods could be manufactured by Indian companies. In the case of most industries, Russia is unable to fulfill these conditions. When it comes to being a source of FDI, Russia is a comparatively small player in the Indian market, just as in the case of bilateral trade. Indian data summarizing the last 22 years (April 2000 to August 2022) indicate that only 3 percent of total FDI into India originated from Russia.
The transfer of knowledge admittedly does not take place as quickly in the defense sector, where political and strategic considerations often prevail over sheer market demand. However, even in this field, Russia has a limited number of advanced platforms to offer India. The fact that American and French military products were sometimes chosen over the Russian items in previous years, or were purchased to replace older Russian equivalents, suggests a certain trend. In case the Russian economy emerges tattered from the war (and with limited access to crucial Western technologies), and in case the Indian economy speeds up, Indian interest in Russian military products may decline even further and more quickly.
New Delhi is unlikely to yield to Western diplomatic pressure because of Indian dependence on Russia. The point is that for New Delhi, economic and strategic calculations prevail over political and ideological divides – but this point cuts both ways. The Indian government views its partnership with Russia exactly in the same pragmatic way in which it perceives its cooperation with the West. New Delhi has purchased not only Russian fighter jets and oil but also American helicopters and planes, and the list goes on.
Russian products have a huge advantage of being cheaper, and this will be a crucial factor in India’s arms imports for many years to come. Thus, the more funds New Delhi has, the less secure Russia’s position on the Indian market. Advanced Western technologies are much more expensive, and when it to comes to key military platforms, Washington has been unwilling to share its own technology with India – but this may change as well. And thus in a (not unlikely) scenario in which the modernization of the Russian economy slows even more, and that of the Indian one picks up in pace, the foundations of Indo-Russian trade will finally crumble.
