A deep dive into the India-Russia economic relationship

In the past decade, the core drivers of India-Russia relations have begun shifting. The traditionally dominant military-technical partnership has declined, with India buying less Russian weapons, technology and military platforms. The economic pillar stagnated as military dealings slowed, with bilateral trade hovering around the US$ 10-11 billion mark. However, since 24 February, 2022, there has been a dramatic uptick in economic ties, with India emerging as Russia’s second-largest trade partner. In 2022, bilateral trade surged to US$ 49 billion, and by the end of 2023, US$ 65 billion. This uptick in trade is primarily attributed to the increasing discounts on oil purchases offered to Indian refiners, as India did not join the sanctions regime against Russia. Along with increasing oil trade, the non-oil trade has also marginally increased in the trade basket. Along with these new trends in bilateral trade, there is a significant overestimation of the India-Russia economic cooperation, which has led to condemnation from the Group of Seven countries (G7), comprising Canada, France, Germany, Italy, Japan, the United Kingdom and the United States).

The traditionally dominant military-technical partnership has declined, with India buying less Russian weapons, technology and military platforms.

Trends in the Ttrade basket

While it’s no surprise that hydrocarbon imports dominate the trade basket, in 2023, US$ 54 billion of the US$ 65 billion exports comprised oil imports from Russia. Similar trends were reflected in the previous year; out of the US$49 billion total trade,US $38 billion constituted oil imports. The overall trade has grown with the increasing oil and mineral imports from Russia. For instance, in 2021, bilateral trade was US$ 12 billion, where oil and mineral fuels constituted only US$ 5.2 billion of the total trade, leaving US$ 6.8 billion in non-oil trade. In 2022 and 2023, non-oil trade increased to US$ 11 billion, a significant growth, indicative of bilateral trade increasing.

Since 2022, Russia’s fertiliser exports have grown substantially. The average Indian import of Russian Fertiliser was around US$ 600 million; however, in 2022-23, fertiliser imports increased to US$ 3 billion. It later declined in the following year, primarily because Russia ended previous discounts on the sale of di-ammonium phosphate. Further, the import of precious stones, metals, and jewellery has increased since 2021. Similarly, Russia’s export of edible vegetables and animal and vegetable fats has increased.

Big-ticket Indian imports from Russia 

Source: Ministry of Commerce and Industry: Tradestat

Interestingly, the goods that traditionally dominated India’s exports to Russia have come down. Pharmaceutical exports are steadily declining. By 2024, pharmaceutical exports from India had declined to US$ 386 million (see Fig 1.2). Further, trade across items such as tea, coffee, and spices has fluctuated, as well as with clothing accessories. However, the export of some commodities has increased since the invasion, such as iron and steel, electrical machinery and consumer electronics, organic and inorganic chemicals, compounds of precious metals, rare-earth metals, soap and by-products, ceramic products, automobiles and spare parts, and medical and surgical equipment. However, one of the biggest Indian exports that surged in 2023-2024, since the invasion, was the export of machinery and mechanical appliances, which increased from US$ 320 million to US$ 650 million. Further, in 2024, from April to August, machinery imports rose to US$ 700 million.

The increase in export volumes of these goods is one of the reasons why India’s total export surged from US$ 3.1 billion to US$ 4.2 billion in 2024. Based on early projections for 2024-2025, it is likely that trade across consumer goods, electronics, machinery, and spare parts will increase. The improvement in trade and increasing avenues for economic cooperation have emerged due to the vacuum left by Western firms in the Russian economy which allowed  Russia to spend the rupees accumulated in its accounts since February 2022.

Fig 1.2: Major Imports to Russia

Source: Ministry of Commerce and Industry: Tradestat

Sanctions and India’s response

Since sanctions were imposed on Russia in 2014, India-Russia trade has largely remained unchanged, seldom disrupted by supply shocks. India’s trade with Russia, even though diversified, is not on a large scale in comparison to other Group of 20 (G20) countries (sans Russia). Neither are there any vast business interests for Indian elites in Russia, apart from oil and pharma, which is why trade data does not reflect any new avenues of trade except in consumer goods and electronics. In November 2022, Moscow sent a list of goods to New Delhi for delivery, including parts for cars, trains, and aircraft. The list consisted of more than 500 entries. It is clear that New Delhi has not supplied Russia with any of the big-ticket items, such as aircraft engines or equipment with high dual-use capabilities (beyond spare parts), as bilateral trade data reflects that trade for the parts requested by Moscow has been minimal.  Furthermore, New Delhi’s defence imports to Russia are a by-product of the bilateral military-technical partnership and to setup joint ventures.

The US Treasury Department imposed sanctions against 19 Indian firms for their alleged involvement in the supply of dual-use goods to Moscow, including a few pharmaceutical companies based in Mumbai re-exporting Dell Technologies’ most advanced server, Dell PowerEdge XE9680, worth US$ 434 million to Russia.

Further, trade data does not reflect any sale of restricted critical technology to Russia, as claimed by a few sources. The sources cite drones worth US$ 5 million and goods worth US$ 600,000 that were re-exported via Kyrgyzstan. Recently, the US Treasury Department imposed sanctions against 19 Indian firms for their alleged involvement in the supply of dual-use goods to Moscow, including a few pharmaceutical companies based in Mumbai re-exporting Dell Technologies’ most advanced server, Dell PowerEdge XE9680, worth US$ 434 million to Russia. Despite these claims, no evidence clearly substantiates them. For instance,  with regards to the first claim of India exporting drones via Kyrgyzstan, the numbers do not add up. Since 2022, trade with Bishkek for electronic products has not crossed US$1 million. Similarly, in the case of arms and ammunition and parts, the trade does not exceed US$ 480,000. Furthermore, in a globalised world where trade takes precedence, trading firms in countries near Russia re-route such trade. For instance, several US and European firms exported US$ 1.2 billion worth of microchips, which were later re-routed from Türkiye and Kazakhstan. Therefore, despite allegations, trade data does not justify the charges. The Indian Ministry of External Affairs (MEA), in response to the criticism, stated that the firms involved did not violate any Indian law, as New Delhi did not recognise non-UN-approved sanctions.

Since early 2024, Western sanctions against Russia have intensified, compelling India to take a stance. For instance, early this year, TotalEnergies invoked a force majeure on Russia’s Arctic LNG-2 project, which led to production being suspended. In the past, Indian firms were interested in purchasing stakes in Novatek’s (a major Russian gas company) Arctic LNG-2 project as part of New Delhi’s outreach to the Russian Arctic. However, the subsequent rounds of European Union (EU) sanctions targeting Russian Liquified Natural Gas (LNG) have prompted New Delhi to announce that it would not purchase LNG from the Arctic LNG 2 project. Interestingly, despite waves of sanctions against Russian energy, the EU continues to import LNG from Russia. Imports have increased by 20 percent this year. The EU has a selective approach to imposing and complying with sanctions. On the one hand, it criticises New Delhi with allegations of India reinforcing the Kremlin coffers, fueling Moscow’s invasion of Ukraine. On the other hand, the EU continues to purchase Russian energy.

Indian firms were interested in purchasing stakes in Novatek’s (a major Russian gas company) Arctic LNG-2 project as part of New Delhi’s outreach to the Russian Arctic.

Issue of payments

Lastly, even though India was able to address payment issues by extending the Special Rupee-Vostro account facility to Russian businesses, certain challenges remain. Regulatory bodies, such as the Securities and Exchange Board of India, have limited foreign portfolio investments by Sberbank AG,  Russia’s largest bank, to hydrocarbons only. Furthermore, because of Russia’s classification as a “high-risk” country by the Financial Action Task Force, the commerce ministry’s Export Credit Guarantee Corporation (ECGC) continues to place Russia in the same category, despite the MEA and the Indian Embassy in Moscow’s request for a reevaluation.

Conclusion

India’s trade with Russia must be viewed from the point of view of one driven by supply and demand factors and not through the intervention of a political apparatus. With bilateral trade likely to continue and intensify with Russia, the intensity of secondary sanctions might impact New Delhi’s economic engagement with Moscow. India is presented with a set of challenges: it must  sustain its engagement with Moscow while continuing to further its cooperation with the West, all while ensuring that its short-and medium-term energy security needs are addressed. Navigating these challenges will be essential for India as it seeks to balance its strategic interests in a complex global landscape.

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