With the European Union still imposing sanctions on Russia, Indian companies are in a rare scenario of filling the economic gap left by the exit of Western companies. The Indian Business Alliance (IBA) has opined that the new EU sanctions, instead of alienating Russia, have opened up new frontiers to Indian exporters and investors, resulting in the bilateral trade between the two nations increasing manifold, a trend also reflected in the growing confidence of the share market towards Indo-Russian trade prospects.
Rising Trade Amid Sanctions
The IBA reports that the level of India-Russia trade in the year 2010 was the highest at about USD 69 billion, with both countries expanding their collaboration in other fields like energy and machinery, pharmaceuticals, and consumer goods. Indian exports in Russia have increased consistently in the last two years, when the Western suppliers had exited major areas due to a series of EU sanctions.
The 19th package of sanctions on Russia, declared earlier this month, influenced the Russian energy and finance, and defence sectors. Nevertheless, the re-balancing of Moscow economy towards its so-called friendly countries has been achieved, and India has become one of its most powerful allies in the given process.
Economic Widening of Sectors of Cooperation
Some of the sectors that have a strong growth include pharmaceuticals, engineering goods, auto parts and agricultural commodities. Emerging generic drugmakers in India, especially, have experienced increased demand in Russia, where the Western drug brands either postponed or cut down exports.
Equally, Indian manufacturing companies of machinery and spare parts are taking a step in to take over the abandoned supply chains of the Europeans.
The Russian market is also experiencing an uptake of consumer goods like tea, coffee, rice, garments and spices. The IBA has mentioned that several companies in India have started considering joint ventures and distribution alliances to secure a long-term presence in the market.
Strategic Opportunity India
According to the trade analysts, the situation has both commercial and strategic benefits to India. The increased exports to Russia are allowing Indian companies to move beyond the more traditional markets in the West and are lessening the reliance on a small number of partners to trade with. Meanwhile, Russia enjoys the advantage of a constant supply of basic products that are no longer found in Europe or the United States.
It has been engaged in efforts to promote collaboration by ensuring that it hosts trade fairs, assists companies in navigating logistics services and payment, as well as offers advice on how to comply with international trade requirements, says the IBA.
Since most European shipping and financial avenues are now closed to Russian organisations, these types of aid have played a central role in ensuring the supply of goods between the two countries.
Challenges Remain
The optimism notwithstanding, there are several challenges that Indian exporters are going through. The process of settlements with payments remains a challenge due to restrictions imposed on Russian banks and the low number of safe financial methods. Alternative currencies that are used by many companies include the Indian rupee and the Chinese yuan. There is also a distance in shipping routes, and it is more expensive because the European ports are restricted.
Additionally, analysts warn that further upgrading of Western sanctions would make the trade even more difficult. To prevent the imposition of secondary sanctions, as well as reputational risks, firms should make sure that they adhere to international norms strictly.
Striking the right balance between Opportunity and Caution.
As the opportunities are enormous, there is concern among the experts that excessive reliance on Russia may result in long-term vulnerability. They observe that the present-day trade boom is more a result of geopolitical changes as opposed to natural markets. The process of sanction lifting in the future may bring a new shift in the Russian market.
However, the IBA believes that Indian companies are in a better position than ever before to make a major contribution to the supply ecosystem of Russia.
The alliance advised companies to grow but in a controlled manner by targeting areas that have high demand and being transparent in all transactions. It also emphasised the importance of robust risk management and the use of secure trading mechanisms, especially in light of evolving global financial sanctions and currency fluctuations.
The next Chapter in bilateral relations
The changing trade relations between Russia and India are a wider pattern of economic rebalancing in the world. With the West still isolating Moscow, other countries such as India are taking advantage of some of the trade avenues as they balance their diplomatic neutrality.
In the meantime, the two governments seem determined to continue the momentum in bilateral trade. Provided this time of sanctions is intelligently managed, the IBA feels that this may be the start of a new, win-win era between India and Russia in the field of economic cooperation.
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