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Mainstream, VOL LI, No 6, January 26, 2013 - Republic Day Special

Putin’s Visit to India — Advantage Russia

Saturday 2 February 2013

by R.G. GIDADHUBLI

Russian President Vladimir Putin’s visit to India on December 25, 2012, though very brief, is an evidence of the fact that India is on his priority list to promote his global geopolitical and geo-economic objectives. No doubt Germany on the West and China on the East apart from Kazakhstan in the ‘Near Abroad’, which he has already visited after taking over his third term of presidency in May 2012, are more crucial from Russia’s perspective and interest than India. But Putin’s visit was of historic significance as it coincided with the 65th year of diplomatic relations between India and Russia. During Putin’s visit, as per protocol, 10 pacts have been signed and these cover defence, political, economic, trade agreements between the two countries. The Russian official sources have claimed that the 13th India-Russia annual summit between Putin and Prime Minister Manmohan Singh has been very successful; this is justifiably advantageous for Russia. And that is evident from the following.

Firstly, Russia has got contracts worth $ 4 billion to supply a wide range of defence equipment goods to India’s Army, Navy and Air Force. To name a few, these comprise 42 more Sukhoi-30 MK fighters, 71 additional Mi-17V5 helicopters and so on. The joint venture between Elcom Systems of India and Helicopters of Russia to manufacture helicopters in India is an added boost for the Russian defence enterprises. Being in power for over 12 years and starting his third term as the President, Putin has spared no effort to retain the dominant position of Russia holding more than two-thirds of India’s defence market much against the growing competition from other countries, such as Israel, the USA, France and so on. Defence exports being the major source of hard currency earnings for his country, Putin has succeeded in his policy which is clear from the fact that India has virtually overtaken the position of China as the largest customer of Russia’s defence machinery and equipment.

Secondly, on the political front, the visit of Putin has reinforced the continuity of close, cordial bilateral relations between India and Russia built over several decades. Equally impor-tant is the fact that both the leaders have demonstrated that there are no conflicts of interest between the two countries. Putin should be credited for his consistent support to India for its membership in the Shanghai Cooperation Organisation (while China is supporting Pakistan), permanent membership in the Security Council of the UNO. Hence there is continuity in bilateral and multilateral relationship between India and Russia and the strategic partnership the two have built over the last few decades.

Thirdly, much to the satisfaction of Putin, the Indian Prime Minister declared that negotiations were in progress for the construction of 3rd and 4th units of Kudankulam even as the project is in trouble triggered by some sections of political and social groups in Tamil Nadu against the project on environmental issues. Moreover, having supported India’s policy of promoting nuclear energy, unlike some Western countries including the USA, Russia will also benefit in securing orders for exporting machinery for a few other proposed nuclear power projects that are in the pipeline in India since the last few years. Apart from the Atomstroyexport firm which has built the 1000 MW nuclear power plant in Kudankulam, Russia has been preparing to export machinery to a few other nuclear plants in other parts of India. Russian companies are also exporting machinery and technology for several hydro and thermal power projects in Chhattisgarh, UP, Uttaranchal etc.

Fourthly, Russia continues to deal with government and semi-government agencies in India and hence has largely succeeded in its policy of exporting machinery and technology. For instance, AFK Sistema holds 74 per cent share in joint venture in India’s telecom sector under the brand “MTS” having investment of about $ 7 billion dealing in this hi-tech field. Putin might also take credit since during his visit India’s state-run telecom operators, BSNL and MTNL, signed a pact for conducting a pilot project for the use of Russia’s satellite-based navigation services developed by NIS-Glonass. The success of Russia in India is important since this will enhance its global image in this hi-tech telecom sector.

Fifthly, notwithstanding the policy of privati-sation, Russia’s oil giants Gazprom and Rosneft, with due support and protection of the state, have enhanced their role in the domestic energy sector by reducing the share of European energy firms such as TNK-BP etc. The Russian oil giants have also increased their investment in the Central Asian and Middle Eastern domestic energy sector as a part of Putin’s policy to make Russia an energy superpower. These develop-ments are important because India’s interest might be affected as there are speculations that Russia might link concessions given to India’s ONGC Videsh Ltd (OVL) in Russia’s Sakhalin-1—it has been offered share in Russia’s oilfields in the Far Eastern region—to the issue of the Russian telecom company, Sistema, having joint venture in India, which is in litigation as its validity of licence along with 122 other firms is in Indian court. An indication was given to that effect by Putin who frankly raised the issue and urged the Prime Minister to expedite and resolve the matter.

India’s Concerns

FROM what is stated above, there are several advantages that Russia has been able to secure in its relations with India. As compared to that, India, notwithstanding the cordiality and consistency in its bilateral political relations with Russia, does not enjoy similar benefits; this deserves consideration and attention. Firstly, the weakest point in India-Russia relations is the bilateral trade and economic ties. The share of India in Russia’s total imports is negligible: hardly one per cent as compared to that of Germany or China, which have emerged as major trading partners and sources of supply for Russia. According to Indian sources, the India-Russia trade turnover has increased from $ 3.5 billion in 2007-08 to $ 6.4 billion in 2011-12, even as there is some variation in trade data among various Indian and Russian sources. At any rate this is far below the target of $ 10 billion set for 2010-11 by the two countries in their earlier joint agreements; this shows a lacklustre trend in trade performance during the last five years.

What is even more worrisome, India is not only suffering from adverse balance of trade (total value of imports from Russia higher than exports to Russia) but that the gap has widened from $ 1.6 billion in 2007-08 to $ 2.8 billion in 2011-12. Even the claim of the Prime Minister during Putin’s visit that trade has increased by 30 per cent in 2012 could be mainly due to increase in Russia’s exports of machinery and equipment and the cooperation in the energy sector.

Secondly, India has lost the prominent share it enjoyed in the total Soviet imports of traditional items such as tea, coffee, tobacco. This is partly due to intense competition in the case of tea from Sri Lanka, coffee from Brazil etc. But apart from that, there has been complacency on the part of some Indian companies because of the status they enjoyed when the state-to-state arrangement was prevailing and targets were fixed by the two governments under the Rupee trade arrangement. Moreover, in the post-Soviet era certain unfair methods being practised by a few trading firms of both India and Russia damaged the reputation of India’s goods among Russian consumers.

Thirdly, while Russia has continued to enjoy trading with government agencies in India for supplying defence equipment and technology and machinery for nuclear energy, oil and gas enterprises etc., that is not the case for Indian exporters. Indian export agencies that were comfortable to deal with the Soviet state trading organisations are required to establish and sustain contacts with entrepreneurs, oligarchs and private firms. Moreover bureaucratic controls, corruption are added problems for Indian exporters of a wide range of consumer goods such as tea, coffee, spices, tobacco, textiles and they are struggling to sustain trade with Russia. An added problem that India has been facing is the lack of direct transport linkages since the former Odessa port is in Ukraine. Above all, as opined by many analysts, Russia has not been able to build a truly open and competitive market economy despite efforts being made to bring about transition from the former socialist system to a market economy.

Fourthly, it is significant that during the visit of Putin, Elder Pharmaceuticals of India jointly with Pharma Eco of Russia signed an agreement to set up a manufacturing plant in Russia involving investment of $ 100 million. While this is a good beginning, there are many well-established pharma companies in India (which are exporting a wide range of medicines, generic pharma products to Russia during the last two decades) that can set up joint ventures in Russia to meet the growing needs of medicines of Russia. Even as India’s pharma sector accounts for about 25-30 per cent of the country’s total exports to Russia, its share is very small in Russia’s total imports as compared to that of some Western countries. In fact many Indian pharma companies such as Dr Reddy’s Labora-tories, Lupin, Glenmark etc.—which have been exporting to the USA and West European countries and have established their reputation in the West—should be treated on par with Western pharmaceutical firms by Russia. This will be in the interest and benefit of both India and Russia since their products are of equally high quality and much cheaper than those of the West. But in reality the situation seems to be different because, according to some experts, during the last few years even well-established Indian pharma firms continue to face many constraints such as very stringent state regula-tions in Russia and much longer time for registration of products as compared to Western firms and so on. Hence the high brand Indian pharma firms have to struggle to sustain their exports to Russia apart from facing a strong European lobby in the Russian pharma market. But in the ultimate analysis, while many Indian pharma firms suffer from these problems, the victims are the Russian lower middle and middle class population which constitute over 60 per cent of population; they are the worst hit due to high prices of medicines and lack of inadequate state support for healthcare facilities resulting in rising death rate, declining birth rate etc.

It needs to be mentioned that there is scope for greater cooperation between India and Russia in the pharma sector. This is because, according to the Planning Commission of India, the pharmaceutical industry will expand very rapidly reaching the target of $ 100 billion by 2020 accounting for about five per cent of the global drug industry. At the same time with the proposed emergence of the Eurasian Economic Union comprising Russia, Kazakhstan and Byelorussia by 2015, the market for medicines will be very large for Indian pharma companies.

Fifthly, a positive development in India-Russia relations is the $2 billon pact between the State Bank of India and Rus Foundation for Direct Investment (RDIF) to provide financial support to joint venture projects in both the countries and to promote closer economic ties. This is expected to boost bilateral investment with focus on projects, startup firms and privati-sation opportunities in both the countries. In fact this is part of Putin’s plan to attract more foreign direct investment and advanced technology to achieve the objective of moderni-sation and diversification of the Russian economy. Russia will be looking forward for the participation of Indian IT and hi-tech firms such as Tata Consultancy Services, Reliance etc. in ‘Skolkovo’ near Moscow which is Putin’s dream project to make it the Silicon Valley of Russia. While it will be in the fitness of things that India should be interested in deepening bilateral ties with Russia there are constraints. In fact what would certainly be a matter of worry for Putin is that in 2012 the outflow of capital from Russia was more than the inflow into Russia. Hence Putin needs to make serious efforts to improve the investment climate in Russia, reduce bureaucratic controls etc. to attract foreign capital and technology.

Even as Indian concerns must be addressed and efforts made to overcome them for long-term mutual benefit, Vladimir Putin deserves to be complimented for strengthening relations with India and at the same time securing both political and economic advantages for Russia.

Dr Gidadhubli is a Professor and former Director, Centre for Central Eurasian Studies, University of Mumbai.

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