Russia Is Launching an Economic and Diplomatic Offensive to Court India, the New Rising Star in Asia, but Experts Say There Are Some Practical Hurdles to Overcome Before Success
Russian President Dmitry Medvedev on Tuesday joined the ranks of the world’s most eligible suitors, who have lately been tripping over each other, vying for a place in India's heart. Over the past several weeks, the leaders of the United Kingdom, United States, France and China – all permanent members of UN Security Council – have flocked to India, each accompanied by a large delegation of business leaders scrambling to take advantage of India’s fast-growing economy and to pledge support for the aspirations of the nascent global power.
For Russia, India's growing economic clout and its military heft are all too tempting and obvious to ignore. India's constantly expanding middle-class is now riding on 8.5 percent annualized economic growth into the future. India sports the world's second largest labor force of 440 million, and its 600 million mobile phone users make it one of the fastest growing markets. With the Asian country’s GDP projected to hit $6.6 trillion by 2030, it would be hard not to agree with American President Barack Obama’s remark that India has indeed “emerged.”
President Medvedev is trying hard to tap into India’s huge potential by reordering Russia’s economic priorities. However, Russia, which was once India’s closest economic and political partner and has had a monopoly on its defense market for decades, is now struggling to play its hand as a "special and privileged strategic partner" – a reflection of how far economics has trumped ideology. As India’s clout grew on the world stage, the country has started to re-assert itself by reducing its reliance on any one country like Russia.
Bilateral trade between India and Russia is also on the seamy side, eclipsed by Russia’s booming economic ties with the European Union and China, Russia's steadily rising eastern neighbor. It is telling that Russia's trade with India will total a paltry $10 billion this year, while Russia's bilateral trade with China today is nearly $50 billion, and with the European Union – nearly $250 billion. A joint statement between India and Russia on Tuesday said both nations would set about increasing bilateral trade to $20 billion in five years. "This is beyond modest," exclaimed Pramit Pal Chaudhuri, the foreign editor of Hindustan Times.
“I believe that trade between us does not nearly reflect our privileged partnership,” president Medvedev said after talks with Prime Minister Manmohan Singh and the ruling Congress Party Chief Sonia Gandhi in New Delhi on Tuesday. “India is a comfortable partner, especially in energy.”
Medvedev managed to clinch some strategic deals for Russia’s energy sector. Russian Energy Minister Sergei Shmatko and Indian Petroleum and Natural Gas Minister Murli Deora inked an intergovernmental agreement on developing cooperation in the oil and gas sphere. The agreement is to allow India to acquire hydrocarbon assets in Russia and buy oil and gas from there in addition to affording both countries the opportunity to jointly explore and harness resources in hydrocarbon-rich countries. Russian gas giant Gazprom was already considering a possible swap of liquefied natural gas (LNG) supplies to India in exchange for its 20 percent stake in the Sakhalin-1 project, RIA Novosti reported in October citing Gazprom's head of Foreign Relations Stanislav Tsygankov.
Russia was also eager to expand nuclear energy cooperation by supplying India with more nuclear reactors in Kudankulam, but both countries have so far failed to finalize an agreement because of Russia’s wariness of India’s civil nuclear liability law, which seeks to hold suppliers liable for nuclear mishaps. Russia wants to know how the tricky supplier liability clause will be implemented in the event of a nuclear accident, according to unnamed Russian sources cited by Times of India.
A key breakthrough during Tuesday's visit is an oil and gas merger agreement signed between India’s state-run Oil and Natural Gas Corporation Ltd. (ONGC) and Russian conglomerate Sistema. According to the frame-work agreement signed by Sistema chairman Vladimir Yevtushenkov and ONGC Videsh Managing Director RS Butola, the Indian firm will have a 25 percent shareholding with a say in management under a no-cash joint venture between Bashneft, RussNeft and Imperial Energy. ONGC Videsh, the foreign arm of the state-owned giant, India’s second-largest company by market capitalization, acquired Imperial in 2008 for $2.1 billion. Imperial produces about one million tons of crude oil annually and all its assets are in Russia. The Russian firms have an annual oil production of 25 million tons and their refineries have a capacity of 20 million tons, not counting discovered oil fields of Trebs and Titov in northern Russia.
In all, India and Russia inked over 30 agreements on Tuesday to consolidate and extend strategic cooperation in the civil nuclear, hydrocarbons and space sectors. They include a preliminary design contract signed by the heads of Russia's Rosoboronexport and Sukhoi with Hindustan Aeronautics Limited (HAL) for the design of the Fifth Generation Fighter Aircraft (FGFA). The $295 million-project has been billed as the biggest defense program in India's history and could lead to India spending around $35 billion over the next two decades on between 250 and 300 advanced stealth fighters from 2020 onward.
Another landmark development has been Moscow's decision to open the door to Indian pharmaceutical firms. Russia's drug industry imploded in the 1990s and, according to Russian figures, today imports half a billion dollars worth of drugs from India. Such agreement, experts say, could provide the corporate link that continues to elude India and Russia.
Relations between both countries also reflect a shift in priority under president Medvedev from defense to modernization. Some of the agreements signed Tuesday cover cooperation in science, technology and innovation that would give technological and scientific support to boost India's economic growth. Russia also pitched its GLONASS navigation system, a rival to American GPS, to India in the hope that its high precision signal access could help the Asian giant reduce its reliance on GPS.
While Russia remains India's largest defense partner, Russia's defense dealings with India have been facing stiff headwinds, despite the realization in India that only Russia will be ready to supply it with some "sensitive" military hardware. India has consciously diversified its defense imports since the 1999 Kargil conflict, turning toward countries like Israel, France, UK and now increasingly the United States, The Times of India reported on Wednesday. Israel, in particular, is snapping at the heels of Russia, notching up sales worth over $10 billion since Kargil, the paper wrote.
Defense contracts have also been minimal because of what India perceives as the raw deals on weapons sales from Russia. “India will keep its fingers crossed because of the Russian propensity to miss delivery schedules, jack up costs mid-way through the execution of agreements and create roadblocks in the transfer of technology. The failure to provide uninterrupted supply of spares or regular maintenance has been another major sore point for India," according to Rajat Pandit, a Senior Assistant Editor at The Times of India. Indian officials cite the prolonged and bitter dispute over aircraft carrier Admiral Gorshkov's refit cost, which has led former Indian Navy chief Admiral Sureesh Mehta to publicly warn that India should not put "all its defense eggs in the Russian basket."
The complaints cut both ways: “Russians complain that India continues to believe it should get weapons at throwaway prices as it did in Soviet days,” Pramit Pal Chaudhuri wrote in the Hindustan Times. “From Moscow's standpoint, Admiral Gorshkov is about New Delhi squeezing them to get an aircraft carrier for less than a billion dollars.” Indian senior military officials have been irked by the fact that India is paying $2.33 billion for the delivery of Gorshkov, instead of the earlier $974 million in what was thought to be “a fixed price contract” when it was inked in January 2004.
Many Indians have also decried the lack of visible civil society engagement between the two countries. A study by Igor Kotin of St. Petersburg State University estimated the entire Indian population in Russia to be about 40,000 – most of them medical students who return home. In an effort to bridge the gap, the Russian and Indian Foreign Ministers signed an agreement on Tuesday to ease visa requirements for certain categories of citizens, including non-diplomats and non-officials who have long complained that it was difficult to obtain multiple-entry visas to Russia. “Russia has fallen off the map for a generation of Indians, and vice versa,” Chaudhuri said. “This feeds into a minimal private corporate sector engagement between the two countries.”
