Russia's trade turnover with India is growing rapidly thanks to Russian oil supplies — in 2023 it may reach a record $65.7bn. However, at the same time, Russia's role as a supplier of industrial products to India, primarily armaments, is shrinking. Thus, the emerging model of trade relations between Russia and India mirrors the one that Russia has already developed with China. Meanwhile, India may become the primary beneficiary of geopolitical rivalries and escalating tensions between China and the United States, absorbing Western investments and production leaving China on the one hand, and obtaining Russian oil at discounted prices on the other. In this model, India will likely be able to gradually increase its commodity exports to Russia — the Russian authorities are pushing for this due to difficulties in settling oil deliveries in Indian currency.
After the imposition of sanctions against Russian oil, India has become its largest importer. Moreover, according to analysts, Indian buyers do not adhere to the price cap set by the G7, EU, and Australia. According to a recent survey of traders conducted by Reuters, in October, India was paying an average of $80 per barrel for Russian oil, which is $20 above the capped price. The discount of Urals crude to Brent at Indian ports has narrowed to $5. However, the increase in oil supplies is largely responsible for the expansion of economic cooperation between the two countries since the war and Russia's 'pivot to Asia'. In the first six months of 2023, Russia-India trade turnover almost tripled to $33.5bn, which is close to the turnover for the whole of 2022 ($35bn). At the end of the year, trade turnover between the two countries may reach $65.7bn, according to data from India's Ministry of Commerce and Industry. During the first half of the year, $25 billion, or more than 70% of Russian exports, was accounted for by oil and oil products. Although the export of goods from India to Russia increased during this period, it did not even reach $2 billion.
Historically, Russia and India have been closely linked. The basis for cooperation in the 20th century was the tense relations of both countries with the United States, according to a report by the Indian think tank the Observer Research Foundation (ORF). While the US was the main geopolitical adversary for the USSR, India has traditionally been concerned about US ties with Pakistan. Until 1991, the USSR remained India's largest trading partner and contributed significantly to the development of key sectors of Indian industry. Additionally, the countries cooperated in defence. The vast majority of armoured vehicles in service with the Indian army are Soviet-Russian T-72 and T-90S tanks, while a significant part of aviation is made up of MiG-21, Su-30 and MiG-29 aircraft. More than half of India's submarines are of Soviet design. After the collapse of the USSR, the ties between the two gradually weakened, especially when it came to their economies. As a result, in the 2021-2022 fiscal year, India's trade turnover with Russia was estimated at only $13bn, compared with $115bn of trade with China and $119bn with the US, according to the experts at ORF. Russia held only the 25th position in the list of India's largest trading partners.
While Russia remains India's largest supplier of weapons, its share in India's military-industrial imports has significantly decreased in recent years. According to the Stockholm International Peace Research Institute (SIPRI), it accounted for 62% of India's defence imports in 2014 but by 2022, it had dropped to only 45%. Following on the list of major defence exporters are the United States (29%) and France (11%), who have increased their shares over the same period. Moreover, India is becoming not only an importer but also a supplier to the US defence industry. During the recent visit of Indian Prime Minister Narendra Modi to the United States, which was given significant importance in Washington, an agreement was announced between General Electric and India's Hindustan Aeronautics: they will jointly produce engines for American military aircraft. Alongside India's efforts to diversify its sources, another factor contributing to the reduction in defence cooperation could be the possibility that Russia, at the request of its senior partner China, may refrain from supplying India with its most advanced weaponry, as noted in a joint report by Carnegie experts Rajan Menon and Eugene Rumer.
In other areas, Russia-India trade relations have even less potential, according to Menon and Roemer. Although India has not joined the Western sanctions against Russia, it is oriented towards the West in its development and is trying to take advantage of the opportunities offered by the global confrontation between the US and China. In the late 2010s, against the backdrop of Donald Trump's US-China trade war, major US companies started to think about relocating from China to India and other countries in the region (such as Vietnam). A few years later, several of these have already achieved some results.
Apple assembles some iPhone models, including the latest iPhone 15, in India. Microsoft manufactures Xbox consoles there. Alphabet, Google's parent company, plans to start producing Pixel smartphones in India soon. According to Bloomberg sources, Tesla may begin construction of a factory in India in 2024. In June, Micron Technology, one of the largest American chip manufacturers, signed a $2.7bn agreement with Indian authorities to build a factory. The latter project is particularly significant. By contrast, the US is winding down its relations with Chinese wire manufacturers. As a result, according to calculations by S&P Global, from January 2020 to March 2023, India increased its exports to the US by 67%. At the same time, exports of smartphones grew tenfold and exports of electrical equipment more than tripled.
Given India's desire to capitalise on the US-China standoff, developing relations with Russia will not be a priority for India, Menon and Eugene conclude. The experts at ORF also predict that India will drift towards the West rather than strengthening ties with Russia.
Indeed, in 2023, India became the world's largest country in terms of population size: 1.418 billion people compared to China's 1.411 billion. At the same time, India's nominal GDP is 5.3 times smaller than that of China ($3.4 trillion versus $17.9), and 2.5 times smaller in terms of purchasing power parity. Over the last thirty years, the Indian economy has been growing at 6% per annum, leaving it lagging behind China. Between 1990 and 2000, the Chinese economy grew at 10% per annum, but in the last ten years the growth rate has declined to 6.2%, almost equal to that of India.
The escalating geopolitical rivalry between China and the United States offers India a unique opportunity to absorb Western investments diverted from China while maintaining the competitiveness of its production thanks to discounted Russian oil. However, India is quite capable of expanding its exports to Russia, primarily through products that replace Western imports that have fallen out of favour. Russia, in turn, will be encouraged to do so by the difficulties with settling payments for oil supplies in rupees. In other words, similar to its relationship with China, which Re: Russia has recently described, in its ties with India, Russia now plays the role of a 'resource appendage,' supplying energy at discounted prices and receiving industrial imports in exchange. At the same time, New Delhi's focus on American investments will inevitably mean a further reduction of Russian arms supplies to India and their replacement by American ones, and will also prevent Russia from increasing its imports of high-tech products manufactured in India. This will further increase the raw material asymmetry of Russian foreign trade and will contrast sharply with the situation 50 years ago, when the Soviet economy was the driver of industrialisation for 'backward' India.