Indo-Russian bilateral trade is growing at a much slower pace than potential.
India and its trusted ally, Russia will sign defence deals worth $4 billion (over Rs 18,140 crore) to acquire 29 MiG-29K war planes during Russian Prime Minister Vladimir Putin’s visit to India.
Besides, India and Russia will invest $600 million (about Rs 2,720 crore) to set up a joint venture to produce a medium lift transport aircraft for armed forces. Putin’s visit will also see the final agreement for a $600-million joint venture between Bangalore-based state-owned Hindustan Aeronautics (HAL) and Russia’s United Aircraft Cooperation (UAC) to make new-generation fighter planes.
The Russian PM would also be happy to know the bilateral trade between India and Russia had been increasing in recent years. “India and Russia had a bilateral trade of $6.9 billion in 2008 and our assessment is that this figure could be about $7.9 billion in 2009,” Pripuran Singh Haer, secretary general, Indo-Russian Chamber of Commerce and former ambassador, says.
Haer says unlike in the past, Russia is driven by the private sector and choice of consumers. The governments of various of provinces are very serious in attracting Indian investments to Russia and are encouraging their businesses to invest in India.
He also says that if the richness of the former Soviet Union was confined only to two cities like Moscow and St Petersburg, all other provinces are emerging as economic power houses, optimising their natural resources.
There are some visible changes in bilateral trade, especially in sectors like tourism. Take the case of Kerala. Soon Kerala’s Ayurveda, culture and scenic beauty will be mass-marketed in the Russian language through an interactive website. The state will appoint Russian translators to assist tourists visiting Kerala.
“Last year, 8,800 Russians had visited Kerala and we expect this figure to increase to at least 11,000,” says Ratheesh Nair, counsel for the Russian Federation, and director of the Russian Culture Centre.
He is actively engaged in marketing Russia in India, mainly through cultural exchanges and films. Already, 150 Russian films have been shown in various villages of Kerala.
Two weeks ago, Russia’s largest truck maker Kamaz opened a manufacturing facility at Hozur in Karnataka, which will help to see Russian trucks on Indian roads in near future. Kamaz, the world’s 11th largest truck maker and the eighth largest producer of diesel engines globally, had entered into a joint venture (JV) with the India-based Vectra Group in March, last year to form Kamaz Vectra Motors. The JV will make 5,000 trucks per year.
In November last year, the Department of Telecommunications (DoT) had given a ‘no objection’ to the Russian government for picking up a 20 per cent stake in telecom service provider Sistema-Shyam Telecom (SSTL) for a little over $676 million (Rs 3,200 crore). SSTL is a joint venture company between Russia’s Sistema and the Shyam Group of India. Sistema is the majority shareholder in SSTL with a 73.71 per cent equity.
A month before that, MTS India, the CDMA mobile service arm of SSTL, had expanded its presence in the retail space in Russia with the acquisition of Teleforum, a Russian mobile retail chain with 180 stores, in an acquisition valued $11 million.
Larsen and Toubro, India’s largest engineering company, had entered into a memorandum of understanding (MoU) with Atomstroyexport (ASE) of Russia for equipment and other services required for the four additional Russian nuclear reactors coming up at Kudankulam in Tamil Nadu and other Russian reactors at new sites in India.
“We are based in Russia since 2001 and it has been a good experience. If good projects come our way we would certainly look at them too.” said OVL’s managing director, R S Butola.
The opportunities have prompted Kotak Investment Banking, a subsidiary of Kotak Mahindra Bank, to enter into an exclusive alliance with Renaissance Capital, Russia’s biggest home-grown investment bank, in December. The alliance is to use Renaissance’s franchise in Russia, Africa and the former Soviet Union countries and Kotak’s Indian experience to help big companies from those countries buy into each other’s markets. Moscow-based Renaissance Capital, backed by Russian billionaire Mikhail Prokhorov, specialises in resources industries, particularly mining and oil and gas.
“Russian investment in India is likely to pick up especially in resources and resource-related sectors. Heavy engineering also looks promising,” says Falguni Nayar, managing director, Kotak Mahindra Capital.
“Infrastructure, food processing, especially supply of milk during winter season to Russia, and information technology are some of the areas Indian companies need to immediately think of making investments in Russia. Pharmaceuticals is another,” says Haer.
NOT ALL IS WELL
However, experts say while the Indo-Russian bilateral trade may seem big, they hardly justify the long standing relationship between both the countries for many decades and the size of their economies.
The overall foreign direct investment by Russia in India between April 2000 and December 2009 was just 0.38 per cent of India’s overall FDI worth Rs 17,842 crore and Russia stands only at the 20th position. Even this figure is mainly due to a single investment by SSTL.
In reverse, Indian investments in Russia for the same period was just $2.8 billion, mainly from public sector ONGC Videsh Ltd’s (OVL’s) investment worth $2.1 billion in Sakhalin-1, a large oil and gas field in Far East offshore in Russia.
In 2006, India and Russia had entered into a bilateral deal for economic development and trade, with a target of $10 billion by 2010. The target is unlikely to be met though it has recently been reset to $20 billion by 2015.
Experts attribute many reasons for Indo-Russian trade not living up to its potential. The loss of a port is one of the main reasons. For example, before the disintegration of the erstwhile Soviet Union, Odessa, a natural port in Black Sea, was the direct port for Indian exporters to ship their goods to Russia in less than 15 days. Now this port belongs to Ukraine and Indian exporters have to ship their products through Europe, mainly using Finland as the gateway.
At least 30 days are required to ship goods through this route and logistics costs are prohibitive. Further, issues such as non-tariff barriers and fear of the previous era experience of bureaucratic red tapes and corruption are still haunting many Indian entrepreneurs from going to Russia, said sources familiar with the developments.
An India-Russia CEO’s Council, representing leading industrialists of both the nations were formed in February last year to boost mutual private sector cooperation. Reliance Industries Chairman Mukesh Ambani co-chairs the Council, along with Vladimir Yevtushenkov, chief executive of Sistema.
“But we are yet to see any proactive action from this Council so far and unless the industry leaders call the shots, investments in both countries will be confined only to government-government co-operation and defence and nuclear deals,” said a source having expertise on India-Russia relations.
Analysts also say that given the higher cost of assets, political constraints and higher pay back period, private Indian companies are keeping away from Russia.
“Assets in Russia are priced on the higher side. With the kind of cash balance Oil and Natural Gas Corporation maintains, it is easy for it to invest in Russia unlike private companies,” said a Mumbai-based analyst.
Analysts said investment in the upstream sector in Russia was a good option due to good potential reserves but as the companies had to share the find with the government, the recovery was slow. Sakhalin-I at present produces 155,000 barrel of oil per day (bopd) and OVL’s share is around 32,000 bopd (1.5 million tonnes).
| WITH LOVE FROM RUSSIA # Defence deals worth $4 billion will be signed # Visible changes in bilateral trade, especially in sectors like tourism # The governments of various provinces are very serious in attracting Indian investments to Russia and are encouraging their businesses to invest in India # Russia's largest truck maker Kamaz opened a manufacturing facility at Hozur in Karnataka, which will help to see Russian trucks on Indian roads in near future # Larsen and Toubro entered into an MoU with Atomstroyexport of Russia for equipment and other services required for the four additional Russian nuclear reactors coming up at Kudankulam in Tamil Nadu and other Russian reactors at new sites in India # The right call: Sistema-Shyam Telecom and the Shyam Group of India telecom deal # Analysts also say that given the higher cost of assets, political constraints and higher pay back period, private Indian companies are keeping away from Russia |
(With inputs from Sudeep Jain and Kalpana Pathak in Mumbai; Joe C Mathew in New Delhi)
