On July 9, Indian Prime Minister Narendra Modi concluded a two-day visit to Russia, marked by substantive discussions with President Vladimir Putin during the 22nd India-Russia Annual Summit. This visit was Modi’s first to Russia since commencing his third term – and perhaps more importantly, the first since the Russia-Ukraine conflict escalated in February 2022.
In recognition of his efforts to enhance the Special and Privileged Strategic Partnership between India and Russia, Modi was bestowed with Russia’s highest civilian honor, the “Order of Saint Andrew the Apostle.”
Modi’s warm welcome in Russia underscored the nuanced trajectory of India’s foreign policy, which maintains strategic autonomy. The trip occurred at a strategically critical juncture, wrapping up just a day before the NATO Summit in Washington.
The U.S. ambassador to India, Eric Garcetti, expressed concerns regarding Modi’s trip, emphasizing the necessity for reciprocal engagement in the India-U.S. relationship and cautioning against complacency. He stressed the importance of mutual trust and cooperation. Meanwhile, State Department Spokesperson Matthew Miller urged India to utilize its unique relationship with Russia to help bring an end to the conflict in Ukraine.
With Putin proposing a peaceful settlement to the war, India is presented with an opportunity to play a leading role in mediating between Russia and Ukraine, as well as Russia and the West. This potential has provided India with leverage to continue its bilateral relationship with Russia, as Washington seeks an intermediary to engage with Moscow.
After a two-year hiatus, then, the India-Russia annual summit convened with renewed vigor, culminating in the signing of several pivotal agreements. These accords aim to enhance trade relations, address climate change, promote the peaceful use of nuclear energy, and foster cooperation between government broadcasters.
The India-Russia Trade Imbalance
Putin and Modi noted the increase in trade and set a bilateral trade target of $100 billion by 2030. The total bilateral trade in goods for fiscal year 2023-24 amounted to $65.7 billion. Despite this substantial figure, a critical issue persists: India’s exports to Russia remain relatively low, resulting in a trade imbalance that the Indian government is keen to address. India’s exports to Russia amounted to $4.3 billion in the last fiscal year, with imports from Russia at $61.4 billion (93 percent of the total trade). To mitigate this imbalance, India seeks to increase its export capacity to Russia, aiming for a more balanced and mutually beneficial trade relationship. In their joint statement, both nations emphasized the need for “increased Indian exports to balance bilateral trade.”
Oil imports constitute a major component of trade between the two countries. Today, Russia is the top supplier of crude oil to India, followed by Iraq and Saudi Arabia. In fiscal year 2023-24, Russian crude oil constituted nearly 36 percent of India’s oil imports, a significant increase from 21.5 percent in the previous year. For comparison, before the Russia-Ukraine war, only about 2 percent of India’s crude oil imports came from Russia.
The primary reason for India’s increased oil purchases from Russia is the availability of oil at discounted rates. Indian refineries benefit from this arrangement by exporting refined products to Europe and the West, which appreciate the reduced environmental burden since the refining process is highly polluting.
Currency Issues and Payment Mechanisms
A significant development during Modi’s trip was the discussion of a new payment mechanism to address ongoing currency issues. India has been paying Russia in rupees, leading to Russia’s substantial accumulation of Indian currency. This accumulation poses a challenge, as it limits Russia’s ability to utilize these funds effectively outside of India.
To address this, one proposed solution involves Russia spending these rupees within India through joint ventures and collaborative projects. An example of such collaboration is Indo-Russian Rifles Private Limited (IRRPL), a joint venture between the two countries, which has produced 35,000 Kalashnikov AK-203 assault rifles for the Indian Ministry of Defense. This approach not only helps manage the currency surplus but also fosters deeper economic cooperation between the two countries.
Similarly, India can make investments in outlined areas of cooperation in Russia’s Far East. This way, there will be an exchange of currency, promoting balanced economic engagement and benefiting both nations.
Cooperation in Defense
The agreement to manufacture spare parts and platforms for Russian-origin arms and defense equipment in India under the “Make in India” initiative signifies a crucial advancement in bilateral cooperation between the two nations. This initiative aims to localize the production of essential components, thereby reducing dependency on foreign imports and boosting India’s self-reliance in defense manufacturing.
The immediate benefits of this agreement are constrained by the ongoing conflict in Ukraine. Therefore, it is unlikely that Russia will be able to fully meet India’s demand for spare parts and defense equipment in the near term.
India’s dependence on Russian military equipment is significant, with around 36 percent of its arms supplies coming from Russia between 2019 and 2023. Despite a substantial decline in arms imports, approximately 65 percent of the Indian Armed Forces’ legacy equipment is still Russian. This reliance is due to longstanding historical ties and decades of use of this legacy equipment.
However, the technology is evolving rapidly, and Russia’s defense technology is a step behind that of the West. As a result, the technological gap is expected to widen, compelling India to reassess its defense procurement strategy. Given these circumstances, a decline in arms imports from Russia is anticipated.
Cooperation in Nuclear Energy
Both sides emphasized the significance of cooperation in the “peaceful use of nuclear energy” as a key element of their strategic partnership. India has 24 operational nuclear reactors with a total output of 8080 MWe. Most of these reactors are Indian-made with an output of 220 MWe each. The two large Russian-made reactors generate nearly 30 percent of the total output. Of the 10 reactors under construction, four Russian reactors will provide half of the planned 8000 MWe output.
Currently, nuclear energy accounts for only 2 percent of India’s power generation. India aims to achieve net-zero greenhouse gas emissions by 2070, making Russia’s cooperation crucial for building additional nuclear plants to meet the growing demand for power.
Past efforts to collaborate with the U.S. (2008) and France (2018) stalled due to the Civil Liability for Nuclear Damage Act. Unlike Western nations, Russia, with its state-run companies, is less deterred by compensation risks. However, India must consider the security risks of relying heavily on one country.
Conclusion
Modi’s visit to Russia showcased India’s strategic autonomy. Within a span of one month, the Indian prime minister attended the G-7 summit and met with Putin, signaling India’s balanced approach to international relations.
Similarly, last year, India successfully navigated a critical document through the G-20 summit it hosted by skillfully crafting the document, which had something for everyone. India managed to bring together diverse and conflicting interests of the member nations, securing consensus and cooperation.
In the current geopolitical environment, India’s role as a facilitator between Russia and Ukraine is more feasible than that of a mediator. This is due to the hardened positions on both sides of the conflict, particularly with NATO’s firm stance on Ukraine’s “irreversible path” to joining the alliance. This rigidity leaves little room for mediation efforts. India’s optimal role as a bridge rather than a mediator stems from the pragmatic understanding that direct mediation might overextend its diplomatic influence and potentially harm its credibility.
Despite facing significant economic and political pressures, India has consistently demonstrated its commitment to maintaining a strong relationship with Russia. This steadfast support dates back to the early 1990s when India honored a rupee-ruble trade agreement that was economically unfavorable to India. This agreement, stemming from a time when Russia was transitioning from the Soviet era and facing severe economic hardships, involved India purchasing Russian goods with the devalued ruble. Although the terms were not economically beneficial for India, the decision to honor the agreement showcased India’s solidarity with Russia during a critical period.
India’s support for Russia has not been one-sided, however. Despite India’s strengthening ties with the United States, Russia continues to be a crucial partner for India. The strategic and economic significance of India-Russia relations is unlikely to wane. Unlike the U.S., Russia does not critique India’s approach, fostering a more pragmatic and mutually respectful partnership. Thus Modi’s visit also signals that Western policies, dominated by U.S. interests, will not sway India to terminate agreements that are beneficial for its growth.