The India-Russia relationship has a major problem: the trade imbalance due to arms and oil
Russia's record oil exports to India are starting to experience significant currency problems.
The vrov stressed that Russia has hoarded billions of rupees in Indian banks which it cannot use.
"This is a problem. We have to use this money. But to do that, the rupees have to be converted into another currency, and that's being discussed."
Since the start of the Russian special operation in Ukraine in February 2022, India and Russia have been exploring options to settle their trade in rupees or rubles, but even after more than a year they have not made much progress.
Trade imbalance between India and Russia
The problem is that India's imports from Russia far outnumber its exports. Consequently, payments in Indian rupees to Vostro accounts of Indian banks are of no use to Russia.
The obvious solution is for India to increase its exports to Russia. Unfortunately, Indian exports are severely limited by the poor quality of Indian products. Also, Russia is a resource-rich country, so India doesn't have the ability to export raw materials, it should export industrial products, but these don't have the characteristics needed for the Russian market.
India could pay Russia's accumulated billions of rupees by converting them into a currency such as the Chinese Yuan, but that would mean assuming the conversion costs. China's huge trade surplus with India makes the rupee particularly weak against the yuan.
Suspension of rupee-ruble exchanges
According to Reuters, exchanges of rupees and rubles between India and Russia have been suspended. The suspension will likely limit, if not end, the import of cheap Russian oil since the start of the war in Ukraine. Normally Russia would change rupees into dollars and buy goods with dollars, but this is precluded. So if India wants to continue buying Russian oil without limits, it must produce something that Russia wants to buy.
For example, Russia is capable of producing almost everything it needs on its own, but this does not make it an economic power. Russian exports are also limited in quality compared to goods produced by China, Japan and many European countries.
Russia's turn to Asia is a historic opportunity for India's private sector to ramp up exports to Russia. Our response to the Ukrainian crisis so far has been similar to that of a trader, not that of an entrepreneur. India can easily carve out a market niche by exporting consumer goods to Russia.
India-Russia, strategic implications
India's deep-seated defense relations with Russia, which have been in good health for decades, have been threatened by US CAATSA sanctions for some years now. The suspension of rupee trade with Russia will have a severe impact on India's defense capability, perhaps at a time when India cannot afford to weaken.
It is likely that Russia previously withheld the supply of two more S-400 regiments to India due to the latter's inability to compensate Moscow economically. Russia could continue to supply India with oil because it has an oil surplus, but it could not continue to supply S-400 because it does not have a surplus of S-400 regiments. Not now, at least, when he's fighting a war.
The possibility of Joint Venture
Russia has expressed its enthusiasm for participating in Made-in-India defense projects through cross-industry collaboration.
Indian Defense Minister Rajnath Singh had a bilateral meeting with Russian Defense Minister Army General Sergei K Shoigu on the sidelines of the Shanghai Cooperation Organization (SCO) defense ministers meeting held in New Delhi on April 28, 2023.
The two ministers discussed broad issues of bilateral defense cooperation, including military ties and industrial partnership. They expressed satisfaction with the continued trust and mutual respect between the two countries, particularly in the defense sector, and reaffirmed their commitment to strengthen the partnership.
Wary of US CAATSA sanctions, India is trying to get Russia to jointly develop and produce local weapons systems, and Russia has been willing.
India and Russia have discussed a technical collaboration for local production of S-400 systems in India. In September 2019, the CEO of the Russian state-owned company Rostec, Sergey Chemezov said that both India and Russia are currently in talks to start a local production line of S-400 in India.
"Yes, we are also discussing localization [of S-400 production] with India," Chemezov told Russian television RBK.
Russia is participating in the tender for the local production of the P-75I submarines in India. Russia is ready to transfer the technology of its Amur 1650 submarine to India and to work with the DRDO to equip the submarine with an AIP system.
Russia is ready to supply technology for new Indian tanks. Russia's Federal Service for Military-Technical Cooperation (FSVTS) said Moscow could share its advanced Armata modular tracked platform with India. Vladimir Drozhzhov, deputy director of the FSVTS, told Russian media that Moscow is interested in jointly developing India's main battle tank with modern Russian technology. However, if the Army's exploits in Ukraine were mediocre, what sense would it make for India to buy it?
Among other development offerings from the Russian JV is the Su-75 Checkmate stealth fighter.
Puzzling lack of urgency from India
The lack of urgency on the part of our negotiators to work out a trade mechanism is staggering. As Lavrov said, Russia, which is fighting a war, needs to use the money India owes Russia. As a strategic partner with special privileges, one would expect India to be sensitive to Russia's concerns, but it seems uninterested. Perhaps Indian companies do not feel particularly the need to export to Russia, having a large domestic market and local or Western international markets, they do not have a great interest in developing products useful for Russia. Therefore it will be necessary to find alternative solutions, such as triangulations, to be able to solve the problem of the excess of rupees in Moscow's hands.
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The article The India-Russia relationship has a big problem: the trade imbalance due to arms and oil comes from Economic Scenarios .
This is a machine translation of a post published on Scenari Economici at the URL https://scenarieconomici.it/il-rapporto-india-russia-ha-un-grosso-problema-lo-squilibrio-commerciale-dovuto-a-armi-e-petrolio/ on Sat, 06 May 2023 20:18:32 +0000.