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Vasily Shikin

Postgraduate Student, Peoples’ Friendship University of Russia

India has been paying special attention to its relations with the West ever since the current government under the leadership of Narendra Modi came to power. Russia is no longer a major priority in India’s foreign policy objectives. It would seem that cooperation between Moscow and New Delhi has lost its former dynamism and, in terms of size and import, is far from the declared “Strategic Partnership.”

The President of the Russian Federation achieved yet another success while treading the “three seas” at the BRICS Summit in Goa, especially for large Russian companies that are growing their businesses in India. However, despite the fact that Moscow and New Delhi were able to reach new agreements on military and technical cooperation and energy, both countries will have to take a serious look at their approach to building relations if they want to take their partnership to the next level.

The BRICS Summit took place in Goa on October 15–16 and reaffirmed yet again the close partner ties enjoyed by Russia and India. In keeping with tradition, the BRICS platform was chosen as the venue for preliminary agreements and contracts on military and technical cooperation and energy to be signed. However, despite the impressive set of documents signed in Goa, it would seem that cooperation between Moscow and New Delhi has lost its former dynamism and, in terms of size and import, is far from the declared “Strategic Partnership” that has characterized Russia–India relations since 2000. The latest summit can serve as a convincing reason to try and discover exactly what it is that could threaten the partnership between Russia and India in the future and what is preventing this relationship from moving to the next level.

A Farewell to Arms

As always, the recent BRICS Summit was fruitful for the Russian defence industry. Military and technical cooperation traditionally serves as a driver of the Russia–India partnership. Moscow is the largest supplier of military equipment to India, with contracts worth more than $5 billion signed since 2012. At the same time, India is the world’s biggest importer of military equipment, and it is little surprise that Russian suppliers are facing increasing competition on the Indian market.

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An intergovernmental agreement was signed in Goa on the supply of modern Russian S-400 missile systems to India. A contract worth somewhere in the region of $4.5 billion is expected to be signed in early 2016. The sides also signed an agreement on the purchase by India of Russian naval ships. In addition, an agreement has been reached between Russia’s Rosoboronexport and the Indian company HAL on the creation of a joint venture to localize production of Kamov Ka-226 helicopters in India.

Although India has been the leading purchaser of Russian weapons since 2007, Russia’s share in the Indian arms market has been shrinking gradually in recent years. The trend is unmistakable. The first hints appeared in 2012, when the Russian MiG-35 lost out in a tender for the purchase and localization of production of 126 fighter jets for the Indian Air Force to the French Rafale. By the end of 2014, Russia had relinquished its position as India’s leading arms supplier to United States

The most recent tenders have demonstrated that tactical and technical products may not be enough in the long term to secure the custom of the Indian side.

Russian companies have failed primarily because India considers developing its own defence industry to be a priority, while the Russian side is not prepared to accept all of the conditions connected with localizing arms production, including as part of the Make in India programme to stimulate industrial production. The Indian Armed Forces are also unhappy with the fact that delivery deadlines have been missed. One of the most high-profile examples of this was the late delivery of the Vikramaditya (formerly the Admiral Gorshkov) aircraft carrier. It is against this background that the Indian political establishment is keeping a close, and rather exasperated, eye on the supplies of advanced weapon systems to China and the burgeoning military and technical cooperation between Russia and Pakistan.

Considering the amount of weaponry sold to India throughout the 2000s, it could be argued that Russia does not need to worry about losing the Indian market in the foreseeable future, as the Armed Forces are heavily dependent on supplies of Russian components. However, the most recent tenders have demonstrated that tactical and technical products may not be enough in the long term to secure the custom of the Indian side. New Delhi will expect foreign suppliers to make lucrative offers that involve the transfer of technologies so that it can create its own production base and develop the Indian defence industry.

Oil in Exchange for Investments

Energy is another source of pride in the Russia–India strategic partnership. In the long term, this could be of even greater benefit that the arms trade. And nuclear energy has been on the agenda of bilateral relations for a long time now. The official ceremony to mark the commissioning of the Kudankulam Nuclear Power Plant was held during the Summit in Goa, and the ground of units 3 and 4 was broken. In addition to nuclear energy, the oil and gas sector is also showing increasing promise in terms of bilateral cooperation.

India has always shown great interest in purchasing Russian oil and gas, but the logistical difficulties, coupled with the fact that India could satisfy its energy needs by purchasing oil and gas in Europe, meant that Russian suppliers saw no benefit in developing such projects. However, it would be short-sighted to ignore the Indian market at a time like this: energy prices are low, and the Indian economy is stepping up oil imports faster than any other country, including China.

It would be short-sighted to ignore the Indian market at a time like this: energy prices are low, and the Indian economy is stepping up oil imports faster than any other country, including China.

Rosneft announced at the BRICS Summit that it has signed a deal, alongside its partner, the major independent oil trader Trafigura, to purchase the Indian company Essar Oil for around $13 billion. As part of deal, Rosneft will receive a 49-per cent stake in the Vadinar Refinery, the second largest refinery in India in terms of volume, as well as a chain of 2700 Essar gas stations. The oil will most likely be delivered from Venezuela, where Rosneft has production and exploration operations, and sold primarily on the Indian market, or exported from there to South Asia and South East Asia. The deal has strategic importance for the Russian company: the acquisition of Essar will give it a presence on the world’s fastest growing oil market, with 70 per cent of its requirements coming from imports. Moving forward, it may be able to apply pressure on suppliers from the Gulf, which have rushed to fill the void left by Russia after it was forced to withdraw from the European markets following the sanctions.

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While Russian oil companies, faced with falling prices and international sanctions, are interested in foreign processing companies, the Indian side is doing the exact opposite, seeking to gain access to the sources of raw materials. In May 2016, the Indian company ОNGC Videsh bought a 15-per cent stake in the Vankor Field from Rosneft, and in September it signed an agreement to purchase another 11 per cent. At the same time, Rosneft is discussing the possibility of selling a further 23.9 per cent of the field with a consortium of Indian investors that includes Oil India, Indian Oil Corporation and Bharat Petro Resources. Vankor Field will account for the largest amount of Indian investment in oil production in Russia since Indian companies purchased shares in Sakhalin-1.

The role of India as a potential investor in the Russian oil and gas industry is growing. This much is clear from information coming out of India (but which has yet to be confirmed in Russia) suggesting that Moscow is considering India as a possible participant in the upcoming partial privatization of Rosneft.

Getting Russian gas onto the Indian market appears to be a much more difficult proposition. The contract between Gazprom and GAIL for the supply of 2.5 million tonnes of liquefied natural gas starting in 2018/2019 for a period of 25 years was signed back in 2012. However, development of the Shtokman field, which was to supply the raw materials, has been frozen, and Gazprom does not currently have the output capacity to fulfil its obligations. It is expected that the gas will be delivered to India from the Yamal LNG plant, the first train of which is planned to be commissioned in late 2017. In addition to the technical difficulties, it seems that Gazprom will also be faced with commercial risks: the fall in gas prices has caused India to re-examine the delivery prices in its long-term contracts.

Have We Hit a Plateau?

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Unfortunately, the isolated successes of Russian arms dealers and energy companies in India that were covered in glorious detail during the Goa Summit do not alter the fact that the strategic partnership between Russia and India has seemingly hit a plateau. And without serious political will, this plateau will not be overcome in the near future.

When the Declaration on Strategic Partnership between the Republic of India and the Russian Federation was signed in 2000, the trade turnover between Russia and India was a modest $1.5 billion. The foreign trade departments of the two countries decided then to increase this rather embarrassing figure to $10 billion (which is far more fitting of a strategic partnership) by 2010. That goal was reached only in 2012, however, which turned out to be the peak year in terms of trade turnover between Russia and India. Trade dropped to $7.83 billion in 2015, which falls well below Moscow’s expectations of its cooperation with New Delhi.

Unfortunately, the isolated successes of Russian arms dealers and energy companies in India that were covered in glorious detail during the Goa Summit do not alter the fact that the strategic partnership between Russia and India has seemingly hit a plateau.

The devaluation of the rouble obviously had an impact on this drop in 2015. But this should not divert our attention from the systemic problems: the old model of partnership based on cooperation in strategic industries (or, in simpler terms, in industries where the government has a big presence), has exhausted its growth potential. India has been paying special attention to its relations with developed countries ever since the current government under the leadership of Narendra Modi came to power – the United States, Japan, Australia, France, Germany and the United Kingdom. As far as the Indian leadership is concerned, these countries are sources of investments, investments that India sorely needs in order to modernize its infrastructure and speed up economic growth. With this in mind, relations with Russia are no longer a major priority in India’s foreign policy objectives. And there may not be enough administrative leverage to further stimulate the development of an economic partnership on orders from above.

The old model of partnership based on cooperation in strategic industries has exhausted its growth potential.

In order to bring economic ties to a new level, it is necessary to expand the product range. This will allow private companies and ordinary citizens, and not only state corporations, to contribute to the trade turnover between the two countries. Relations between Russia and the other Asian giant, China, are developing according to this model. To compare: trade turnover between Russia and China totalled roughly $68 billion in 2014. And we are not just talking about arms and raw materials here. Russians spent around $3.5 billion in Chinese online stores in 2014, which is around the same price as the contract for the supply of the S-400 missile systems to India. And customers spend an average of less than $20 on these online orders.

If the partnership between Russia and India does not go beyond the “strategic” sectors in the near future and does not expand to include goods and services, then relations between Moscow and Delhi risk being reduced to an investment and economic partnership of little note.

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