Country Profile: Russia

• The medium-term outlook for the country profile of Russia remains modest at 1.4-1.8% for the period 2019–21, reflecting lower oil prices and a predicted slowdown in global trade.
• The Indo-Russian FTA would result in a much bigger free trade agreement including India, Russia, Kazakhstan, Armenia, Kyrgyzstan & Belarus. Agreement on a free trade zone between the Eurasian Economic Union (EAEU) and India, is expected to help increase the bilateral trade with Russia to US$ 30 billion by 2025.
• India’s entertainment sector has historically enjoyed a special appeal in CIS countries especially Russia, since Indian cinema has had the advantage of accessibility over a long period of time.
• The 7,200 km International North South Transport Corridor (INSTC) is a multi-mode transport network linking Indian Ocean and Persian Gulf to the Caspian Sea via Iran, and onward to northern Europe via St. Petersburg, Russia.

Russia’s economy continues to surge at a decent pace, supported by global growth and an improved macro policy framework. Real GDP growth rate at 2.3% in Russia surpassed expectations in 2018. This was mostly due to higher oil prices, better implementation of construction projects and Russia’s hosting of the FIFA 2018 World Cup. However, the medium-term outlook remains modest at between 1.4% and 1.8% for the period 2019–21, reflecting lower oil prices and a predicted slowdown in global trade.

Government initiatives are aimed at education, health, and infrastructure, which have the potential to lift growth. Concentrating on competition in the domestic market remains key for achieving higher productivity. Although the current expectations of average annual GDP growth at around 1.7%, by itself will not help Russia effectively tackle its poverty situation by 2024, this goal could be better achieved by an additional reallocation of about 0.4% of GDP annually through social assistance and transfers.

Inflation is forecast to accelerate in 2019 on the back of the increase in value added tax rate and rouble depreciation pass-through but will return to the central bank’s target of 4% in 2020-21. The forecast of a narrower external surplus reflects lower oil prices and a pickup in import spending. Stable economic growth, wage growth in the private sector, and the indexation of pensions to inflation should support disposable incomes and contribute to a gradual decline in the poverty rate in 2019-21. However, many Russians lack formal employment, and a number of households remain close to the poverty line.

Top trading partners of Russia, as per 2018

Source: ITC Trade Map

Top traded products of Russia

Source: ITC Trade Map

India-Russia relations

The 7,200 km International North South Transport Corridor (INSTC) is a multi-mode transport network linking the Indian Ocean and Persian Gulf to the Caspian Sea via Iran, and onward to northern Europe via St. Petersburg, Russia. This route is very different from much longer and costlier Suez Canal that India used earlier to transport goods to Russia. This will help connect India with Russia within 16-21 days at competitive freight rates leading to development of trade on the INSTC. The estimated capacity of the corridor is 20-30 million tonnes of goods per year,

Both governments have long viewed their bilateral trade as well below its optimal potential, with the only long-term way of rectifying this through having a FTA. They have set up a joint study group (JSG) to negotiate the specifications of an agreement. A final agreement would be signed between India and the Eurasian Economic Union, of which Russia is a part (also including Kazakhstan, Armenia, Kyrgyzstan & Belarus).

The Indo-Russian FTA would result in a much bigger free trade agreement including India, Russia, Kazakhstan, Armenia, Kyrgyzstan & Belarus. It is predicted that once an FTA is in place, bilateral trade will increase manifold, thereby significantly increasing the importance of economics in bilateral ties. Also India’s entertainment sector has historically enjoyed a special appeal in CIS countries especially Russia, since Indian cinema has had the advantage of accessibility over a long period of time, when penetration of Western cinema to the Russian market was limited.

Expected outcome from proposed FTA

Agreement on a free trade zone between the EAEU and India, is expected to help increase the bilateral trade with Russia to US$ 30 billion by 2025.

India-Russia ongoing Service Trade Agreement

• India and Russia are currently engaged in negotiating services trade through regional trade agreement.
• From India’s perspective, the following services will be beneficial for aggressive negotiations:
i. Transportation services, financial services and other business services (which includes research and development services, professional and management consulting services and technical, trade-related, and other business services), travel services, personal, cultural & recreational services
ii. Currently, India does not have trade surplus in most of these services.

Indo-Russia Bilateral Trade Snapshot

Source: ITC Trade Map

The Russian Ministry of Economic Development has introduced ‘Single window Service’ to facilitate easy flow investment by Indian companies which will help in achieving the mutual trade and investment target. Some of the significant sectors identified for intensive interaction include heavy engineering, pharmaceuticals, hydrocarbons, mining, gems & jewellery, chemicals, fertilizers and food processing industry.

Major products exported by India to Russia in 2018 included medicaments, mobile telephones, tea, frozen shrimps & prawns, commercial vehicles, bovine meat and fresh grapes. Similarly, major products India imported from Russia included unworked diamond, crude petroleum oils, silver, coal, medium oil & preparations, fertilizers and newsprint in sheets.

Military-technical cooperation remains robust, but trade has stagnated at around US$ 9-10 billion for the past few years, which remains a matter for concern. A new area of focus identified under strategic approach to boost trade and investment is Arctic region oil and gas. Russia has offered India access to the area that it owns in the resource rich Arctic region, access to the Northern Sea Route as well as more supplies of natural gas and joint development of gas fields to meet India’s growing needs.