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EAEUIndia: A Strategic Partnership

26 May 2017 Russia India SPIEF

The economic cooperation between the EAEU and India falls short of its full potential, with complex logistics being a major stumbling block on the way to a higher trade turnover. Creation of a free trade area and development of direct economic links between India and Russian regions could help boost the collaboration.

India is one of the key and most promising partners of the Eurasian Economic Union (the EAEU).

  • Its economy is among the fastest-growing globally: the IMF expects India's GDP to increase by 7.2% in 2017 and by 7.7% in 2018.
  • In their declarations, the leaders of India and the EAEU emphasise commitment to win-win projects.

Currently, the full potential of economic cooperation between the EAEU and India is still waiting to be unlocked.

  • In 2016, the trade turnover between India and the EAEU increased by a measly 0.1% to USD 8.8 billion. At the same time, the overall volume of India's external trade in 2016 totalled nearly USD 643 billion.
  • In 2016, India's share in the EAEU's total trade turnover stood at 1.73%, up 0.21% year-on-year. The volume of the EAEU's trade with India is 9 times lower than with China.

Most of the EAEU's trade with India is attributable to Russia as the club's economic powerhouse.

  • India's share in the Russian trade turnover in 2016 increased by 0.1 p.p. (from 1.5% to 1.6%), but the trade volume declined by 1.5% to USD 7.7 billion.

Import restrictions directed against the EAEU members and complex logistics are among the key obstacles standing in the way of efficient collaboration.

  • Out of 138 trade restrictions (including anti-dumping, protectionist and compensatory ones) applied by third countries to the goods originating from the EAEU 13 are attributed to India. For reference: only Ukraine and the EU have put more limitations in place (24 and 23, respectively), while the US has fewer of those (11).
  • Currently, the greatest part of the trade route between India and Russia is by sea (Suez  Gibraltar  the Baltic), with delivery taking over 40 days. This increases the final cost of goods and undermines competitiveness of the Indian and Russian products in these two countries' markets.

Creation of a free trade area (FTA) between the EAEU and India could help strengthen the trade ties. In December 2016, the presidents of the EAEU nations gave the go-ahead to negotiations to make relevant agreements.

  • Veronika Nikishina, Minister for Trade of the Eurasian Economic Commission, is convinced that an FTA would drive the bilateral trade turnover up by approximately 18%.
  • Yaroslav Tarasyuk, Russian Trade Representative in India, believes that the trade volume between Russia and India could grow to USD 30 billion in 2025.

The International North-South Transport Corridor (INSTC), agreed between Russia, India and Iran back in 2000, could help streamline the logistics. It was to that end that RZD Logistics and the Federation of Freight Forwarders' Associations in India signed an agreement in November 2016.

  • There is only one seaway section in the new corridor  the one between the Indian and Iranian ports, with all the other parts of the route running by land across Iran, Azerbaijan and Russia. As a result, the delivery costs are expected to reduce by 30%.

Investment and production cooperation also keeps expanding.

  • In October 2016, Vladimir Putin announced the creation of the joint Russian-Indian Investment Fund (with the contributions of USD 500 million each) to finance infrastructure projects and support innovation, with 20 major projects approved for funding so far.
  • Negotiations are underway to set up licensed production of Sukhoi Superjets and get on with joint efforts to design a regional passenger aircraft.
  • Indian companies are looking into opportunities to invest in Russia's mining industry. For example, in September 2016, the government of India approved the acquisition by ONGC Videsh Limited of an 11% stake (in addition to its shareholding of 15%) in Vankorneft for a consideration of USD 930 million.
  • In July 2015, during the Indian Prime Minister's visit to Kazakhstan, the parties signed a roadmap embracing 26 projects in energy, mechanical engineering, metallurgy, IT, chemical industry, and pharma.

The direct trade, economic and investment contacts between India and Russian regions also have an important role to play.

  • In 2016, 13 delegations from Russian regions visited India, with 10 more coming to share experience in JanuaryMay 2017. The last delegation was from the Chelyabinsk Region, which seeks to increase trade turnover with India three- to four-fold over the next two years from USD 65 million in 2016.

At the end of May, businessmen from India visited the Khabarovsk Territory. Sram & Mram Group is keen to invest some USD 510 million in the region's mining projects.



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