Russia India Economic Relations
India's relation to Soviet Union initially after the former's independence was ambivalent, guided by Nehru's decision to remain non-aligned, and his government's active part in the Commonwealth of Nations. However, in February 1954, the U.S. administration of President Dwight D. Eisenhower announced the decision to provide arms to Pakistan, followed a month later by Pakistan joining the SEATO and subsequently the CENTO. These agreements assured Pakistan the supply of sophisticated military hardware and economic aid.
The developing situation alarmed India, which had uncomfortable relations with Pakistan. Since Pakistan also was near the Soviet Union, it also provided Moscow with the necessity as well as the opportunity to develop its relations with India. India's status as a leader of the Non-aligned Movement would also allow the USSR to bolster Soviet policy in the Third World. India and the USSR therefore pursued similar policies based on common security threat born out of the US interests in Pakistan. It was in this context that India and Soviet Union exchanged military Attaches. Although Indo-Soviet cooperation had begun, the investment of soviet-military aid to India only begun in the context of deteriorating Sino-Soviet and Sino-Indian relations. Following the 1962 Sino-Indian war, the Sino-Pakistani axis was also an impetus for growing cooperation between India and the Soviet Union. By the year 1965, Indo-Soviet relations entered a very important phase which lasted up to 1977. According to Rejaul Karim Laskar, a scholar of Indian foreign policy, the period from 1965 to 1977, is the "golden age" of Indo-Soviet relations.
During the Cold War, India and the Soviet Union (USSR) had a strong strategic, military, economic and diplomatic relationship. After the Dissolution of the Soviet Union, Russia inherited its close relationship with India which resulted in a special relationship. Russia and India both term this relationship as a "special and privileged strategic partnership". Traditionally, the Indo-Russian strategic partnership has been built on five major components: politics, defence, civil nuclear energy, anti-terrorism co-operation and space
A cordial relationship with India that began in the 1950s represented the most successful of the Soviet attempts to foster closer relations with Third World countries. The relationship began with a visit by Indian Prime Minister Jawaharlal Nehru to the Soviet Union in June 1955, and First Secretary of the Communist Party Nikita Khrushchev's return trip to India in the fall of 1955. While in India, Khrushchev announced that the Soviet Union supported Indian sovereignty over the disputed territory of the Kashmir region and over Portuguese coastal enclaves such as Goa.
The Soviet Union's strong relations with India had a negative impact upon both Soviet relations with the People's Republic of China and Indian relations with the PRC, during the Khrushchev period. The Soviet Union declared its neutrality during the 1959 border dispute and the Sino-Indian war of October 1962, although the Chinese strongly objected. The Soviet Union gave India substantial economic and military assistance during the Khrushchev period, and by 1960 India had received more Soviet assistance than China had. This disparity became another point of contention in Sino-Soviet relations. In 1962 the Soviet Union agreed to transfer technology to co-produce the Mikoyan-Gurevich MiG-21 jet fighter in India, which the Soviet Union had earlier denied to China.
In 1965 the Soviet Union served successfully as peace broker between India and Pakistan after an Indian-Pakistani border war. The Soviet Chairman of the Council of Ministers, literally Premier of the Soviet Union, Alexei Kosygin, met with representatives of India and Pakistan and helped them negotiate an end to the military conflict over Kashmir.
In 1971 the former East Pakistan region initiated an effort to secede from its political union with West Pakistan. India supported the secession and, as a guarantee against possible Chinese entrance into the conflict on the side of West Pakistan, it signed with the Soviet Union the Indo-Soviet Treaty of Friendship and Cooperation in August 1971. In December, India entered the conflict and ensured the victory of the secessionists and the establishment of the new state of Bangladesh.
Relations between the Soviet Union and India did not suffer much during the rightist Janata Party's coalition government in the late 1970s, although India did move to establish better economic and military relations with Western countries. To counter these efforts by India to diversify its relations, the Soviet Union proffered additional weaponry and economic assistance.
During the 1980s, despite the 1984 assassination by Sikh separatists of Prime Minister Indira Gandhi, the mainstay of cordial Indian-Soviet relations, India maintained a close relationship with the Soviet Union. Indicating the high priority of relations with the Soviet Union in Indian foreign policy, the new Indian Prime Minister, Rajiv Gandhi, visited the Soviet Union on his first state visit abroad in May 1985 and signed two long-term economic agreements with the Soviet Union. According to Rejaul Karim Laskar, a scholar of Indian foreign policy, during this visit, Rajiv Gandhi developed a personal rapport with Soviet General Secretary Mikhail Gorbachev. In turn, Gorbachev's first visit to a Third World state was his meeting with Rajiv Gandhi in New Delhi in late 1986. General Secretary Gorbachev unsuccessfully urged Rajiv Gandhi to help the Soviet Union set up an Asian collective security system. Gorbachev's advocacy of this proposal, which had also been made by Leonid Brezhnev, was an indication of continuing Soviet interest in using close relations with India as a means of containing China. With the improvement of Sino-Soviet relations in the late 1980s, containing China had less of a priority, but close relations with India remained important as an example of Gorbachev's new Third World policy.
The Indian government, under the leadership of Indira Gandhi, saw itself confronted to a major humanitarian catastrophe, as eight to ten million Bengali fled from East-Pakistan to overcrowded and underfunded refugee camps in India. Indira Gandhi decided in April that a war was needed to stop the exodus and make millions of Bengali refugees return to their homes. However, the Pakistani leadership was very well connected, as Yahya Khan had a close personal friendship with American president Richard Nixon, and harboured excellent diplomatic relations with Mao's China. Under these circumstances, Indira Gandhi was apprehensive about sending an army to East-Pakistan.
To her relief, the Soviet leadership was open to negotiations. The ensuing Treaty of Friendship and cooperation, signed in August 1971, was very loose but sent a strong signal to Washington and Beijing. The treaty was a strong additional incentive for Nixon and Mao to pursue their planned meeting, which took place in February 1972. Eventually, since Nixon needed Brezhnev to end the Vietnam War, the frictions between the two superpowers were streamlined which paved the way for the immensely important summit that was convened in Moscow in May 1972.
The developing situation alarmed India, which had uncomfortable relations with Pakistan. Since Pakistan also was near the Soviet Union, it also provided Moscow with the necessity as well as the opportunity to develop its relations with India. India's status as a leader of the Non-aligned Movement would also allow the USSR to bolster Soviet policy in the Third World. India and the USSR therefore pursued similar policies based on common security threat born out of the US interests in Pakistan. It was in this context that India and Soviet Union exchanged military Attaches. Although Indo-Soviet cooperation had begun, the investment of soviet-military aid to India only begun in the context of deteriorating Sino-Soviet and Sino-Indian relations. Following the 1962 Sino-Indian war, the Sino-Pakistani axis was also an impetus for growing cooperation between India and the Soviet Union. By the year 1965, Indo-Soviet relations entered a very important phase which lasted up to 1977. According to Rejaul Karim Laskar, a scholar of Indian foreign policy, the period from 1965 to 1977, is the "golden age" of Indo-Soviet relations.
During the Cold War, India and the Soviet Union (USSR) had a strong strategic, military, economic and diplomatic relationship. After the Dissolution of the Soviet Union, Russia inherited its close relationship with India which resulted in a special relationship. Russia and India both term this relationship as a "special and privileged strategic partnership". Traditionally, the Indo-Russian strategic partnership has been built on five major components: politics, defence, civil nuclear energy, anti-terrorism co-operation and space
A cordial relationship with India that began in the 1950s represented the most successful of the Soviet attempts to foster closer relations with Third World countries. The relationship began with a visit by Indian Prime Minister Jawaharlal Nehru to the Soviet Union in June 1955, and First Secretary of the Communist Party Nikita Khrushchev's return trip to India in the fall of 1955. While in India, Khrushchev announced that the Soviet Union supported Indian sovereignty over the disputed territory of the Kashmir region and over Portuguese coastal enclaves such as Goa.
The Soviet Union's strong relations with India had a negative impact upon both Soviet relations with the People's Republic of China and Indian relations with the PRC, during the Khrushchev period. The Soviet Union declared its neutrality during the 1959 border dispute and the Sino-Indian war of October 1962, although the Chinese strongly objected. The Soviet Union gave India substantial economic and military assistance during the Khrushchev period, and by 1960 India had received more Soviet assistance than China had. This disparity became another point of contention in Sino-Soviet relations. In 1962 the Soviet Union agreed to transfer technology to co-produce the Mikoyan-Gurevich MiG-21 jet fighter in India, which the Soviet Union had earlier denied to China.
In 1965 the Soviet Union served successfully as peace broker between India and Pakistan after an Indian-Pakistani border war. The Soviet Chairman of the Council of Ministers, literally Premier of the Soviet Union, Alexei Kosygin, met with representatives of India and Pakistan and helped them negotiate an end to the military conflict over Kashmir.
In 1971 the former East Pakistan region initiated an effort to secede from its political union with West Pakistan. India supported the secession and, as a guarantee against possible Chinese entrance into the conflict on the side of West Pakistan, it signed with the Soviet Union the Indo-Soviet Treaty of Friendship and Cooperation in August 1971. In December, India entered the conflict and ensured the victory of the secessionists and the establishment of the new state of Bangladesh.
Relations between the Soviet Union and India did not suffer much during the rightist Janata Party's coalition government in the late 1970s, although India did move to establish better economic and military relations with Western countries. To counter these efforts by India to diversify its relations, the Soviet Union proffered additional weaponry and economic assistance.
During the 1980s, despite the 1984 assassination by Sikh separatists of Prime Minister Indira Gandhi, the mainstay of cordial Indian-Soviet relations, India maintained a close relationship with the Soviet Union. Indicating the high priority of relations with the Soviet Union in Indian foreign policy, the new Indian Prime Minister, Rajiv Gandhi, visited the Soviet Union on his first state visit abroad in May 1985 and signed two long-term economic agreements with the Soviet Union. According to Rejaul Karim Laskar, a scholar of Indian foreign policy, during this visit, Rajiv Gandhi developed a personal rapport with Soviet General Secretary Mikhail Gorbachev. In turn, Gorbachev's first visit to a Third World state was his meeting with Rajiv Gandhi in New Delhi in late 1986. General Secretary Gorbachev unsuccessfully urged Rajiv Gandhi to help the Soviet Union set up an Asian collective security system. Gorbachev's advocacy of this proposal, which had also been made by Leonid Brezhnev, was an indication of continuing Soviet interest in using close relations with India as a means of containing China. With the improvement of Sino-Soviet relations in the late 1980s, containing China had less of a priority, but close relations with India remained important as an example of Gorbachev's new Third World policy.
1971
Following the general elections in Pakistan (March 1971), the Pakistani head of state, general Yahya Khan, was utterly dissatisfied with the large victory of the Awami League, the Bengali party which had its power base in East Pakistan (current day Bangladesh). To pacify East Pakistan, which voted overwhelmingly for the Awami League, he imposed martial law, a curfew, heavy censorship, and the persecution of the Awami League leadership. The Pakistani military, under the orders of general Tikka Khan, used heavy gunfire for almost a week to gain control of East Pakistan's largest city Dacca. After having secured control of the cities, they then turned to the Bengal countryside, where Tikka Khan targeted almost exclusively the Hindu population. This led to a mass exodus of (mostly Hindu) Bengali citizens, who all fled to India.The Indian government, under the leadership of Indira Gandhi, saw itself confronted to a major humanitarian catastrophe, as eight to ten million Bengali fled from East-Pakistan to overcrowded and underfunded refugee camps in India. Indira Gandhi decided in April that a war was needed to stop the exodus and make millions of Bengali refugees return to their homes. However, the Pakistani leadership was very well connected, as Yahya Khan had a close personal friendship with American president Richard Nixon, and harboured excellent diplomatic relations with Mao's China. Under these circumstances, Indira Gandhi was apprehensive about sending an army to East-Pakistan.
To her relief, the Soviet leadership was open to negotiations. The ensuing Treaty of Friendship and cooperation, signed in August 1971, was very loose but sent a strong signal to Washington and Beijing. The treaty was a strong additional incentive for Nixon and Mao to pursue their planned meeting, which took place in February 1972. Eventually, since Nixon needed Brezhnev to end the Vietnam War, the frictions between the two superpowers were streamlined which paved the way for the immensely important summit that was convened in Moscow in May 1972.
Relation under Vladimir Putin
THE centrepiece of President Vladimir Putin's visit in year 2000 was the signing of a 'strategic partnership' agreement with India. Broadly this agreement means enhanced cooperation in the political, economic, defense and cultural fields. In the political field, Putin made positive statements on issues such as Kashmir and international terrorism immediately after signing the agreement. In the area of defense, India signed pacts to purchase, among other things, T-90 tanks, Su-30 MKI jet fighters and the aircraft carrier Admiral Groshkov.
A whole section of the agreement deals with trade and economic issues. Both countries had agreed to strengthen cooperation with a view to expanding trade and economic relations. Several sectors, including metallurgy, fuel and energy, information technology (IT), banking and finance and communications, had been identified. A few other things, such as simplifying procedures and removing non-tariff barriers, had also been mentioned. However, unlike in the political and defense fields, no immediate results were in prospect on the economic front, although it can be argued that under the new circumstances, business in both countries was no more the business of the governments. Therefore, it is up to the private sector to take advantage of the conditions created by these agreements, in the near future.
One important aspect of the old Indo-Soviet friendship was a special bilateral trade and economic relationship. After the disintegration of the Soviet Union, this relationship was badly damaged. Putin's visit had held out an opportunity to create a special bilateral economic relationship, even under entirely different circumstances. Despite having had solid economic and trade relations in the past, a large part of the 1990s constituted a period of difficult adjustments, for Indian as well as Russian businesses. Economic transformation in Russia from a centrally planned economy to a market economy in 1991 coincided with the ushering in of policies of economic liberalization in India. These developments changed the nature and character of foreign economic relations in both countries.
Moreover, the last decade of 20th century has been a very difficult period for Russian business. It is not only that Russia was transforming its economic system, but this transformation was also taking place under a period of "a permanent crisis". As a result, the Russian economy was already reduced to half of what it was in 1990, when another financial and economic crisis hit the economy in August 1998. Its gross domestic product (GDP) now ranked only 16th in the world, with social indicators close to those of medium income developing countries. In contrast, in the said decade the Indian economy had grown rapidly, compared to any other time in the recent past. Indo-Russian economic relations have to be seen in this context.
Since 1953, when the first long-term trade agreement was put in place between India and the Union of Soviet Socialist Republics (USSR), seven such agreements had been signed. This bilateral trade was conducted through a specific system of trade and payment called the Rupee Trade System based on annual plans. An important feature of the system was payments in non-convertible currency. The two countries' trade turnover increased from less than Rs.2 crores in 1953 to about Rs.8,000 crores in 1990-91. In 1990-91, more than 16 per cent of India's exports went to the USSR and about 6 per cent of the imports came from it.
After the collapse of the Soviet Union, India and Russia renegotiated the entire trade regime. An agreement signed in 1993 terminated the rupee trade arrangement and mandated all bilateral trade transactions to be conducted on hard currency basis. The issue of repayment of civilian and military loans taken by India also came up. After prolonged negotiations, the rouble credit was denominated in rupees and repayment schedule was drawn up. It was agreed that India will pay about Rs.3,000 crores annually to Russia for 12 years from 1994, and that Russia would use the rupees to buy Indian goods. Later, it was also agreed that this amount could be put to auction to Russian and third party enterprises at discount to make Indian goods more economically viable . Today, Indo-Russian bilateral trade is based on payments in freely convertible currencies. All Russian exports to India follow the new system. But a large share of Indian exports are still financed through the renegotiated rupee-debt repayment mechanism.
As a result of these economic policy changes, traditional actors in Indo-Russian trade and other economic relations, such as the public sector units and state trading corporations, are no longer as relevant as they used to be in the Soviet era. Sections of the Indian private sector, which used to get away with selling many products of questionable quality under the bilateral trading system, are finding it difficult to adjust to the radically changed economic and commercial environment in Russia today, driven by market forces.
The main items of traditional export from India in 2000 were tea, ready made garments, drugs and pharmaceuticals, coffee, tobacco, rice and leather goods. Some non-traditional items like electronic goods have also shown strong growth. But there has been some negative growth in respect of tea and coffee.
Traditional imports from Russia include fertilizer, iron and steel, non-ferrous metals, newsprint, synthetic rubber and chemicals. in 1999, India imported coal, coke and briquettes, worth $40 million, from Russia. There had also been strong growth in raw cotton, electronic goods and printed books. Negative growth was noticed in iron and steel, organic and inorganic chemicals and gold and silver.
These statistics do not reveal the full story. Many imports from Russia, particularly of metal, metal scrap, fertilizers, paper and paper products, are sourced through international suppliers. Hence they do not reflect in the figures. Similarly, many Indian goods enter Russia via "shuttle trade'', or through third countries.
On the indian side SBI in a 60:40 JV with Canara Bank opened a branch in Russia in 2004 & soon after ICICI Bank the largest Indian Private sector bank in 2006 took over a small bank in Russia.
Russian banks in India have been financing defence deals and energy projects. The growing potential of Indo-Russian bilateral trade makes them look for opportunities in other sectors as well.
More than ten global banks have entered India in the last few years with South African, Chinese, South Korean, Australian, Swiss and Russian banks among them. VTB Bank and Sberbank of Russia opened branches in Delhi while rest of the banks, Vhesheconombank, Gazprombank and Promsvyazbank restricted their presence to representative office model that limits the range of products and services they can offer.
Out of three largest state-owned Russian banks represented in India JSC VTB Bank was the first to open a representative office, which was subsequently converted into a branch in Delhi. “We were very careful while planning the development of our business in India,” says Yuri Yakovlev, head of VTB Bank branch in New Delhi. “We studied the market trying to find our niche where we can stand the competition from local banks. The formation period was not easy.”
The strategic task for the branch was to help Russian companies doing business in India start new projects and set-up operations, as well as helping Indian companies enter the Russian & CIS markets. Among VTB India clients are Rosoboronservice providing service support for Russian military equipment, KamAZ, Russia’s largest heavy truck manufacturer, Chetra, a large manufacturer of earthmoving machinery, Sistema and some Indian companies.
“From 2012 we became profitable, covering earlier years’ losses. VTB started operations in India with equity capital of $27 million and the volume of assets exceeds this figure considerably. Today we understand we need to increase not only assets but equity too as it will allow us to participate in larger deals,” Yakovlev adds.
Yakovlev adds that another part of VTB financial group, investment bank VTB Capital has also entered India. To support Russian companies coming to India, VTB is also pondering over the creation of an investment fund as entering any new market using only borrowed funds is difficult. “Companies need cheaper financing sources allowing them to establish their business in shorter period and stand up the competition,” Yakovlev says. (VTB plans to shut down India branch in 2017)
On the indian side SBI in a 60:40 JV with Canara Bank opened a branch in Russia in 2004 & soon after ICICI Bank the largest Indian Private sector bank in 2006 took over a small bank in Russia.
Russian banks in India have been financing defence deals and energy projects. The growing potential of Indo-Russian bilateral trade makes them look for opportunities in other sectors as well.
More than ten global banks have entered India in the last few years with South African, Chinese, South Korean, Australian, Swiss and Russian banks among them. VTB Bank and Sberbank of Russia opened branches in Delhi while rest of the banks, Vhesheconombank, Gazprombank and Promsvyazbank restricted their presence to representative office model that limits the range of products and services they can offer.
Out of three largest state-owned Russian banks represented in India JSC VTB Bank was the first to open a representative office, which was subsequently converted into a branch in Delhi. “We were very careful while planning the development of our business in India,” says Yuri Yakovlev, head of VTB Bank branch in New Delhi. “We studied the market trying to find our niche where we can stand the competition from local banks. The formation period was not easy.”
The strategic task for the branch was to help Russian companies doing business in India start new projects and set-up operations, as well as helping Indian companies enter the Russian & CIS markets. Among VTB India clients are Rosoboronservice providing service support for Russian military equipment, KamAZ, Russia’s largest heavy truck manufacturer, Chetra, a large manufacturer of earthmoving machinery, Sistema and some Indian companies.
“From 2012 we became profitable, covering earlier years’ losses. VTB started operations in India with equity capital of $27 million and the volume of assets exceeds this figure considerably. Today we understand we need to increase not only assets but equity too as it will allow us to participate in larger deals,” Yakovlev adds.
Yakovlev adds that another part of VTB financial group, investment bank VTB Capital has also entered India. To support Russian companies coming to India, VTB is also pondering over the creation of an investment fund as entering any new market using only borrowed funds is difficult. “Companies need cheaper financing sources allowing them to establish their business in shorter period and stand up the competition,” Yakovlev says. (VTB plans to shut down India branch in 2017)
At the governmental level, an Indo-Russian Inter Governmental Commission on Trade, Economic, Scientific, Technological and Cultural Cooperation has been engaged in certain activities through 11 joint working groups. Some infrastructural projects are being implemented with Russian participation. India and Russia have also cooperated in the oil and gas sector. But most of these initiatives are co operations at the public sector level. ONGC has oil fields in CIS while Russian Rosneft along with a few other investors recently completed the takeover of Essar Oil in India in a $12.5 bn deal.
Sberbank, Russia’s largest bank registered its branch in Delhi two years after VTB Bank, in 2010. Sberbank India's equity today is roughly $30 million. For two years the branch was more of a representative office than a fully operational branch for various reasons. Initially the branch was set up to support Indo-Russian bilateral trade, he added, however, the trade itself had grown significantly only in 2011 - 2013.
Vladislav Voytsekhovich joined Sberbank in 2012 after working for almost 8 years with ICICI Bank in Russia, starting the bank's operations in Russia and serving as CEO, ICICI Bank Eurasia LLC in Moscow. Having had exposure to the Indian banking sector, he set up ambitious targets for the Sberbank branch in Delhi. Voytsekhovich believes that in addition to supporting Indo-Russian trade, Sberbank India should also target Indian companies having business in Russia, Ukraine, Belarus, Kazakhstan, Turkey and Europe where Sberbank has a presence.
“The idea is not only promote our products to these companies but to become a technical partner and consultant for those companies who are eyeing business opportunities in Russia and other countries,” Voytsekhovich says. “That is applicable to Russian / CIS / European / Turkish companies planning to enter Indian market too. My experience shows that companies make a lot of mistakes while establishing their business, choose wrong partners and often get cheated. Our resources allow us help Indian companies finding partners, importers in Russia and reducing the risk of not getting paid. Similarly, for Russian companies planning to do business in India we can guide them, point out the difficulties they may face in India and how they can avoid mistakes. My task is to bring more and more Sberbank’s clients to India and create a good market here,” Voytsekhovich adds.
In 2013 Sberbank India has opened credit lines to two subsidiaries of large Russian companies, Mosmetrostroy, the largest and oldest metro builder, and KamAZ. Voytsekhovich sees machinery, infrastructure, pharmaceutical and agriculture/agrochemicals sectors as the most attractive for Sberbank at this moment. “In case of pharmaceutical companies we are targeting those which already export products to Russia & CIS but have plans to enlarge their presence there, start joint ventures in manufacturing and R&D. We see potential in agriculture sector too. As of now agrochemicals is a promising market, however, I believe, our countries could do much better in fruits, grains, pulses, beans, processed foods, juices, vegetables, spices, tea, sugar and even in herbs and flower segments,” Voytsekhovich says.
Another state-owned bank Gazprombank (GPB) opened its rep office in Delhi in 2010. “The representative office was opened as a result of the immense interest of our corporate clients in the Indian rapidly developing market,” says Alexey Sovko, Head of Gazprombank Representative Office in New Delhi. “Currently the office is promoting our services in Indian financial market and supporting our large corporate customers doing business in India. Moreover we are exploring further market development perspectives.”
Defence, nuclear power, infrastructure, industrial and telecom sectors are GPB key focus areas in India. The bank financed deals of Russian industrial companies where it holds stakes, such as Uralmash and Izhorskie Zavody. The latter supplied products for the Kudankulam Nuclear Power Plant and other projects. In 2010, on the day of launching a representative office, GPB unveiled a deal with Sistema Shyam Teleservices Limited (SSTL), Indian subsidiary of Russia telecom giant Sistema, for a loan of $200 million.
Though the client portfolio of banks from a certain geography in India is similar and sometimes intersects, the volume of business and diverse requirements make it quite possible for all the players to secure their own niches. For eg. ICICI bank in 2015 decided to sell its Eurasia business to finally sell it's Eurasia business. The Russian clients that stayed on with ICICI do business through overseas branches of the bank & soon after VTB Bank made a similar decision in 2017.
Industry experts note that in a country, foreign banks from a certain region compete not with each other but rather with large global banks well-established both in India and Russia - Citibank, Deutsche bank, HSBC for example. Therefore creating brand-awareness in India is something all banks will have to focus on.
Sberbank, Russia’s largest bank registered its branch in Delhi two years after VTB Bank, in 2010. Sberbank India's equity today is roughly $30 million. For two years the branch was more of a representative office than a fully operational branch for various reasons. Initially the branch was set up to support Indo-Russian bilateral trade, he added, however, the trade itself had grown significantly only in 2011 - 2013.
Vladislav Voytsekhovich joined Sberbank in 2012 after working for almost 8 years with ICICI Bank in Russia, starting the bank's operations in Russia and serving as CEO, ICICI Bank Eurasia LLC in Moscow. Having had exposure to the Indian banking sector, he set up ambitious targets for the Sberbank branch in Delhi. Voytsekhovich believes that in addition to supporting Indo-Russian trade, Sberbank India should also target Indian companies having business in Russia, Ukraine, Belarus, Kazakhstan, Turkey and Europe where Sberbank has a presence.
“The idea is not only promote our products to these companies but to become a technical partner and consultant for those companies who are eyeing business opportunities in Russia and other countries,” Voytsekhovich says. “That is applicable to Russian / CIS / European / Turkish companies planning to enter Indian market too. My experience shows that companies make a lot of mistakes while establishing their business, choose wrong partners and often get cheated. Our resources allow us help Indian companies finding partners, importers in Russia and reducing the risk of not getting paid. Similarly, for Russian companies planning to do business in India we can guide them, point out the difficulties they may face in India and how they can avoid mistakes. My task is to bring more and more Sberbank’s clients to India and create a good market here,” Voytsekhovich adds.
In 2013 Sberbank India has opened credit lines to two subsidiaries of large Russian companies, Mosmetrostroy, the largest and oldest metro builder, and KamAZ. Voytsekhovich sees machinery, infrastructure, pharmaceutical and agriculture/agrochemicals sectors as the most attractive for Sberbank at this moment. “In case of pharmaceutical companies we are targeting those which already export products to Russia & CIS but have plans to enlarge their presence there, start joint ventures in manufacturing and R&D. We see potential in agriculture sector too. As of now agrochemicals is a promising market, however, I believe, our countries could do much better in fruits, grains, pulses, beans, processed foods, juices, vegetables, spices, tea, sugar and even in herbs and flower segments,” Voytsekhovich says.
Another state-owned bank Gazprombank (GPB) opened its rep office in Delhi in 2010. “The representative office was opened as a result of the immense interest of our corporate clients in the Indian rapidly developing market,” says Alexey Sovko, Head of Gazprombank Representative Office in New Delhi. “Currently the office is promoting our services in Indian financial market and supporting our large corporate customers doing business in India. Moreover we are exploring further market development perspectives.”
Defence, nuclear power, infrastructure, industrial and telecom sectors are GPB key focus areas in India. The bank financed deals of Russian industrial companies where it holds stakes, such as Uralmash and Izhorskie Zavody. The latter supplied products for the Kudankulam Nuclear Power Plant and other projects. In 2010, on the day of launching a representative office, GPB unveiled a deal with Sistema Shyam Teleservices Limited (SSTL), Indian subsidiary of Russia telecom giant Sistema, for a loan of $200 million.
Though the client portfolio of banks from a certain geography in India is similar and sometimes intersects, the volume of business and diverse requirements make it quite possible for all the players to secure their own niches. For eg. ICICI bank in 2015 decided to sell its Eurasia business to finally sell it's Eurasia business. The Russian clients that stayed on with ICICI do business through overseas branches of the bank & soon after VTB Bank made a similar decision in 2017.
Industry experts note that in a country, foreign banks from a certain region compete not with each other but rather with large global banks well-established both in India and Russia - Citibank, Deutsche bank, HSBC for example. Therefore creating brand-awareness in India is something all banks will have to focus on.
The recent agreement on an India-Russia transport corridor may help in reducing transport costs. The present shipping route, which passes through the Suez Canal and enters the Russian port of St. Petersburg via Kotka (Finland) and Rotterdam (the Netherlands), is long and time-consuming. The proposed route comprises sea and land links across India, Iran and Russia, and will shorten travel time by as much as 10 days. The new route will be Mumbai- Bandar Abbas (Iran) Astrakhan (Russia). Trial runs on said route have been performed in 2013 and trade on the said route is said to begin soon.
The joint declaration also says that both countries would enhance cooperation and coordination at international trade, economic and financial bodies. This may be useful in formulating common positions and responses to emerging global economic issues. In fact, there is also great scope for learning from each other in the area of economic policy making. The experiences of both countries concerning privatization and liberalization of trade could be understood better through regular consultations. Overall, future bilateral economic relations will depend on the importance Russia gives to India's developmental needs. The USSR had played an important role in India's industrialization process. It had a comparative advantage in sectors like steel, which was central to India's industrial needs. India has to assess Russia's current comparative advantage.
Two factors will determine the immediate future of Indo-Russian economic relations. First, sustained growth of the Russian economy and second, competitiveness of Indian industry, commerce and services. Further, things would have been much more transparent if the majority of Indian exports to Russia were not financed through the rupee-debt repayment mechanism. The strong political will in both countries to improve bilateral economic relations could have been converted into real economic gains if some bold policy initiatives have been taken. The present level of Indo-Russian trade is certainly not commensurate with the existing potential. In order to improve these relations, some bold policy initiatives were needed. The joint declaration says that both countries will explore the possibilities of regional trading arrangements with third countries. If policy-makers were serious and imaginative, they could have proposed a bilateral free trade agreement, although there would have been reservations from some industries in both countries. The free-trade agreement had the potential to give a new direction to bilateral relations. It could have created a feeling of special economic relationship.
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