Development of trade relations between Russia and India under international sanctions on the basis of the North-South transport corridor

Osipov Evgenii Anatol'evich Student, Department of International Business and Customs Affairs, Plekhanov Russian University of Economics 141195, Russia, Moscow region, Fryazino, Polevaya str., 23A, sq. 64 evg.ospv@gmail.com

Introduction

The slowdown of globalization processes, global geopolitical tensions, environmental disasters, international sanctions - all these factors affect international trade relations, which remain a key link in the economic dynamics of national and regional economic systems. In these conditions, countries are forced to look for new trading partners and sales markets. Russia found itself in such a situation: currently, the Russian Federation is the leader in the number of sanctions against it – 16,535 restrictions as of July 14, 2023 ^[1], so now the country is shifting its focus to the countries of the Asian region. India has become one of these countries.

Data published in the Economic Times^[2] and Deccan Herald^[3], show that in 2022 the trade turnover between Russia and India reached record values, exceeding 38 billion US dollars, which demonstrates a significant increase in economic activity between the two countries compared to the previous year, when it was 13.5 billion US dollars.

In this context, it becomes relevant to consider trade routes and infrastructure projects that can further increase trade turnover between the two countries.

In this paper, special attention is paid to the role of the International Transport Corridor "North-South" in the development of trade relations between Russia and India. This project, which is a comprehensive transport route connecting the ports of the Russian North Sea with the ports of the Indian Ocean, provides new opportunities to increase trade turnover and strengthen economic ties between the countries.

In the context of international sanctions restricting Russia's access to some global markets, the North-South ITC acts as a key element that can contribute to strengthening economic cooperation and expanding trade cooperation between Russia and India.

In the course of this study, the possibilities of developing economic relations between Russia and India in terms of interaction through the North-South transport corridor were studied and evaluated, taking into account the current situation of Russia under the influence of international sanctions.

Literature review

The possibilities of developing trade relations between Russia and India are confirmed by a number of studies.

Economic ties between India and Russia have a long history of relations in which the USSR played a significant role in the formation of the Indian economy, especially in the 1950s and 1980s, when key infrastructure facilities were built, including a steel plant in Bhilai and an oil refinery in Barauni. However, according to Gubina M.A., in the 90s, Russia and India separated from each other for reasons of logistical problems and accumulated debt on the part of India, while maintaining a high level of cooperation only in the military-technical sphere and nuclear energy^[4].

Since the beginning of the 2000s, there has been a positive shift in trade relations between the two countries, followed by an annual growth rate of trade turnover by an average of 20%. However, despite the participation of both countries in the BRICS and the increase in trade volumes, Russia and India were not significant partners for each other over the next two decades. According to the analysis carried out in the article by N. Y. Rodygina, India is considered as an important partner for Russia in the defense and energy sectors, despite the changing world order, in which new economic challenges arise^[5]. At the same time, the author emphasizes that Russia and India should make efforts to develop relations beyond the defense and energy sectors, pointing out the need to eliminate legal and bureaucratic barriers to business.

However, Kupriyanov A.V., on the contrary, believes that the most promising are the traditional areas of cooperation between Russia and India, such as military-technical cooperation and energy projects using the strategy of "soft power" in Asia. The author explains this by saying that cooperation in these areas will help countries expand their influence in the Indo-Pacific basin region, including small island states, Africa and India's immediate neighborhood, and emphasizes the importance of India not only as an independent market, but also as a key player in the regional trade network^[6].

Studies also reveal a number of problems and obstacles in the development of relations between the two countries. For example, by not joining the sanctions against Russia, Indian banks and financial institutions are still cautious about clearing payments. Such caution is connected with the desire to avoid secondary sanctions in accordance with the US Law of 2017 "On Countering US Adversaries through Sanctions". This law introduces various restrictions for individuals and legal entities interacting with companies and individuals under sanctions^[7].

The study by S. A. Belov also emphasizes the need to solve some problems in building stable ties in trade with India. The lack of a land route for the transportation of goods and the presence of a cumbersome bureaucratic system of customs tariff/non-tariff regulation are discussed, which is exacerbated by global factors, such as the consequences of the COVID-19 pandemic and the slowdown in the growth of world trade in general ^[8].

However, despite these obstacles, there are ways to improve and expand trade relations between Russia and India. The research, in particular, discusses the international transport corridor "North-South", which connects Russia with India and has the potential to expand to the Baltic, Northern and Arctic regions, multiplying the volume of trade^[9].

In addition, the introduction of direct sea communication between the ports of Russia and India is being discussed, which can contribute to increasing the volume of mutual trade, especially in the export of metals, minerals and chemical products. The work of N.D. Shcherbinin, devoted to the study of container transportation in India, emphasizes the importance of diversifying Indian exports, which previously were more focused on the United Kingdom. According to the author, India was able to significantly increase exports of goods such as textiles, equipment and electronics at the end of the last century. Agroexport of India continues to play an important role, which is the result of the consequences of the colonial policy of the metropolis^[10].

Table 1. Overview of scientific research on the problem

Source: compiled by the author

According to Table 1, in the Russian scientific discourse, although the prospects for the development of foreign trade and foreign economic cooperation between Russia and India were previously assessed, further strategies and directions for strengthening relations were not fully disclosed, and were mostly partial, limited to certain areas of interaction.

At the same time, many studies in the field of economic relations between Russia and India pointed to the task of increasing trade turnover to $30 billion by 2025^[11]. However, this bar has already been overcome in 2022, and now both countries face the task of creating a new comprehensive strategy. Such a strategy should take into account not only the historical features of bilateral relations, but also meet modern global challenges. The main task is to eliminate the current obstacles hindering the expansion of economic cooperation and the search for new ways and opportunities, while not being limited to the traditional areas of cooperation, military-industrial and energy, and taking into account the impact of international sanctions and the possibility of using promising logistics routes, such as the North-South ITC.

This study aims to fill these gaps by comprehensively analyzing current and prospective areas of cooperation with an integrated approach and proposing concrete actions. The results of the article can become the basis for further research and be used to develop and implement joint economic and transport strategies, as well as to identify new opportunities for cooperation in both countries.

Material and methods

First of all, it is worth considering the statistics of trade turnover between India and Russia. During the first decade of the new millennium, the total trade turnover of the two countries amounted to 32.4 billion US dollars (Figure 1). Over the next decade (2010s), trade between Russia and India increased by 135%, reaching a total volume of 76.4 billion US dollars, which indicates a significant increase in trade between these two countries.

Figure 1. Dynamics of Russia's foreign trade with India

A source:compiled by the author on the basis of data from the Ministry of Commerce and Industry of India (https://tradestat.commerce.gov.in/eidb/Default.asp )

Currently, India is one of Russia's key trading partners among developing Asian countries. Over the past year, the volume of imports from Russia to India has increased fourfold, reaching 46.2 billion dollars (Table 2). In fiscal year 2022-2023, this figure increased by 368%, and Russia's share in India's total imports reached 6.5%, making Russia India's fifth largest trading partner. This growth is mainly due to an increase in the import of Russian oil, especially after the conflict in Ukraine and the imposition of numerous sanctions on Russia. Previously, India rarely purchased Russian oil due to high transportation costs, but last fiscal year import volumes ranged from 970,000 to 981,000 barrels per day.^[12].

Table 2. Trade turnover of India and Russia, billion US dollars

*the financial year is indicated, it is set from April 1 to March 31

Source: compiled by the author based on data from the Ministry of Commerce and Industry of India (https://tradestat.commerce.gov.in/eidb/Default.asp )

Exports from India to Russia generally show growth from 2018 to 2023, which may be due to India's efforts to diversify its export markets^[13] and increase exports to countries such as Russia. However, there has been a decrease of 3% over the last fiscal year. A slight drop may be due to the introduction of a temporary export duty on steel products and a decrease in textile production due to a drop in cotton yields in India in 2022.

Based on the analysis of the presented data, it becomes obvious that there is an imbalance in the trade of the two countries. This means that the value of goods exported by Russia to India significantly exceeds imports from India, which leads to an excess of Indian rupees for Russian entrepreneurs and a lack of opportunities to spend them, since most imports from India are paid in US dollars.

At the same time, the imbalance problem can be solved in several ways. Firstly, a partial way out of this situation can be found in the transition to paying for goods in a third currency, which is interesting for both Russia and India, for example, UAE dirhams or the use of precious metals. Secondly, India is a major provider of services, in particular in the field of offshore programming, technical support, telecommunications, engineering services, etc., which can become an additional direction for expanding cooperation between countries and the exchange of technology and knowledge. In terms of traditional goods, India can replace Europe in medicines, textiles and exotic food items.

However, despite the potential to reduce the trade imbalance, the main emphasis in trade relations between the two countries is on the export of goods from Russia.

In the fiscal year 2022-2023, mineral fuels (according to HS Code 27) became the main commodity that India imported from Russia (Table 3). The volume of these imports increased from 5 billion US dollars in 2020-2021 to 39 billion US dollars in 2022-2023, which corresponds to an increase of 639%. In the context of the current political situation, Russia is using India as a way to circumvent trade restrictions. India, in turn, resells 2/3 of the volume of these petroleum products to markets inaccessible to Russia, including EU countries. At the same time, oil is sold at a discount of $ 30 per barrel, which is temporarily offset by an increase in the price of oil^[14].

Table 3. Main commodity groups of imports to India from Russia, million US dollars

*the financial year is indicated, it is set from April 1 to March 31

A source:compiled by the author on the basis of data from the Ministry of Commerce and Industry of India (https://tradestat.commerce.gov.in/eidb/Default.asp )

The second largest commodity we import from Russia is fertilizers (31 HS code). The volume of imported fertilizers increased from 773 million US dollars to 3 billion US dollars in 2022-2023, which is an increase of 293%. The sharp growth is also due to the closure of Russia's usual export markets: the United States and EU countries, despite some easing of sanctions.

An increase in imports from Russia by some commodity groups (with HS codes 9.72, 84, 85, 86, 89, etc.) from 80 to 200% on average confirms India's desire to diversify import sources in order to reduce dependence on certain regions or countries not only in the structure of oil.

On the other hand, some goods show a decrease in the volume of imports. In particular, product groups 25, 28, 29, 49, 40, 75 and others showed an average decrease of 40%, which is also due to problems with mutual settlements and stagnation of imports from India.

Data analysis shows that trade relations between Russia and India continue to develop despite international sanctions. The main imported commodity from Russia to India is oil. One of the main factors contributing to the development of the supply of goods is the use of new supply routes that reduce both time and money costs.

To date, the shipment of Russian oil is carried out mainly by tankers departing from the Baltic ports of Ust-Luga and Baltiysk, as well as from the Black Sea port of Novorossiysk. At the same time, the average delivery time is 30-45 days. However, in light of the sanctions imposed on Russia, there is a need to look for alternative delivery routes.

Under these conditions, the North-South International Transport Corridor provides an opportunity for Russia to gain access to the ports of the Persian Gulf, and then to the markets of South and Southeast Asia. This corridor, initiated by Russia and Iran in the early 2000s, is a 7,200 km long transport route that continues to develop despite various obstacles and has the potential to transform transport links in Eurasia, connecting India, Iran and Russia.

However, the realization of this potential faces a number of challenges. In particular, the corridor's infrastructure is limited due to US sanctions against Iran, which reduces the country's transit capabilities. It is worth noting that there is a difference in the width of railway tracks between Iran (1435 mm) and countries such as Russia, Kazakhstan, Azerbaijan and Turkmenistan (1520 mm), which requires either cargo transshipment or the use of specialized rolling stock capable of adapting to different track widths.

These factors lead to a significant gap between current and potential traffic volumes, which can reach 200 million tons per year. Additional problems include a shortage of transit wagons and insufficient development of road infrastructure.

Nevertheless, an important stage in the development of the corridor was reached in May 2023. Russia and Iran have signed an agreement on the construction of the last necessary section of the railway of the western route "North-South" – Rasht-Astara in Iran. This section will be built taking into account two types of track widths: 1435 and 1520 mm, which will ensure the full operation of the railway throughout the corridor (Figure 2.)

Figure 2. The Rasht-Astara section on the North-South MTK route

Source: compiled by the author using the Google My Maps service

The terms and cost of transportation through the North-South MTC make it attractive for cargo owners. Cargo delivery along this corridor takes an average of 15 to 24 days, which is almost twice as fast as the route through the Suez Canal. In addition, in conditions of fluctuations in the cost of sea transportation, railway tariffs along the North-South corridor represent a more stable option.

In general, the North-South MTC will help significantly increase the growing volumes of trade, including oil and gas supplies, and reduce the burden on other supply routes by simplifying and reducing the cost of transporting goods. The MTK can become a symbol of strengthening trade relations between Russia and India, and provide potential for future growth and cooperation. However, the successful implementation of this project will require solving a number of infrastructure and regulatory issues in the near future.

In addition to traditional areas of trade, Moscow and New Delhi are actively exploring opportunities for cooperation in the field of high technology. Given the current sanctions and the need to reduce dependence on technological imports from the West and China's growing influence in the global technological space, the Indian market can become an alternative that provides greater resistance to possible economic and political changes. This is especially relevant, given that the Indian technology industry is estimated to be growing at a high rate of 8.4% in 2023, while many international companies are moving their branches to India. India is expected to become a technology and innovation hub^[15], which will allow Moscow to benefit from its ties with India to offset the impact of sanctions on the Russian technology sector.

By actively cooperating with many Western countries and not supporting sanctions against Russia, India can become a new partner in parallel imports. Given the long-term strategic relationship, and, in fact, trust between the countries, it becomes possible to create new channels for parallel imports, taking into account the newly opened opportunities at the North-South ITC.

In addition, the North-South ITC can help eliminate the imbalance. During the Soviet era, a trade triangle strategy was developed between the USSR, Iraq and India: the USSR exported weapons to Iraq, Iraq sent oil to India, and India exported consumer goods to the USSR. In modern conditions, the revival of this concept would benefit Russia, India and Iraq, but Iraq's participation is unlikely due to its limited sovereignty and dependence on the United States. However, the UAE can become a promising player in this strategy. India's interests in the UAE are much more diverse than in Iraq, and some Indian experts see in them the potential for strategic partnership ^[16]. Such a trade triangle will allow not only to get rid of the rupees accumulated by Russia, but also to load the transport corridor with large volumes of goods, reducing the cost and speeding up their delivery. It is also worth noting that the UAE is traditionally considered an ally of the United States in the region, and strengthening ties with this country may weaken the sanctions.

Discussion of the results

It is advisable to summarize the above proposals and form the following directions for the development of trade relations between Russia and India until 2030, which can be used in the formation of a holistic strategy for the development of partnership between the countries:

1. Strengthening existing areas of cooperation and further expansion of the trade nomenclature. It is necessary to continue cooperation in the fields of military industry and energy, in particular the creation and development of joint projects, for example, such as the placement of production in India of Sukhoi Superjet-100 and MS-21 aircraft, as well as to expand the range of goods supplied from India to Russia: high-tech products, agricultural and consumer goods

2. Eliminate barriers of interaction. Russia and India are official BRICS partners, so it is necessary to eliminate bureaucratic and legal barriers, in particular, customs regulation: simplify customs procedures and reduce tariffs, in particular, it is possible to add India to the list of preferential countries again; and develop mechanisms for trading in national currencies, ensuring agreements between central banks to minimize the impact of Western sanctions.

3. Activation of the North-South ITC and search for new partners. Given the continued growth in trade volumes, it is necessary to intensify work on the North-South corridor to reduce the cost and delivery time, as well as attract new trading partners to solve problems with the imbalance in trade between Russia and India and develop joint marketing strategies to promote the corridor as a reliable transport route with the involvement of the Russian Export Center (REC) and Federation of Indian Export Organizations (FIEO). 

4. Strategic partnership. Russia and India need to strengthen ties with regional forces that can support the interests of Russia and India and weaken the sanctions regime by creating strategic agreements, holding high-level meetings, developing additional joint initiatives in the field of security and defense, accepting new strategically important partners in the BRICS, such as the UAE, and monitoring regional trends to identify the needs and support the interests of both countries.

Thus, the analysis of trade between Russia and India shows an increase in volumes for some commodity groups, largely due to the reorientation of trade flows of strategically important goods, in particular oil and fertilizers, in the face of numerous sanctions imposed on Russia, and highlights the potential for further diversification and expansion of trade ties. The activation of the North-South International Transport Corridor plays an important role in strengthening these economic ties, despite the current infrastructure restrictions and international sanctions against Russia. Recent agreements and strategic initiatives within this corridor open up great opportunities for strengthening trade relations between the two countries, which, in turn, can contribute to stable economic growth and cooperation between Russia and India.