From Russia with Love, for India Inc.
About 40 countries, representing more than half of the world’s economy, have adopted various types of sanctions against the Russian Federation. Over 1,000 companies have announced curtailing operations in Russia to some degree beyond the minimum required by international sanctions, according to the Chief Executive Leadership Institute of the Yale School of Management. This gives companies in India a rare window to build a strong presence in the world’s 11th-largest economy. It helps that the Russian government is also helping new businesses enter the country easily to fill the economic vacuum.
Several Indian businesses, including exporters and major homegrown retail chains, have signed multiple deals with Russian businesses to seize the opportunity. “We have inked multiple contracts with Russian consignees and partners,” says Vikas Singh Chauhan, Director of Skier Export and Import Pvt Ltd. “We are signing deals worth over $200,000. We expect these trade deals to touch at least $1 million per annum.”
Chauhan, a Ghaziabad-based textile exporter, says trade in textiles to Russia via Iran is in full swing. Further, once Indian goods reach Russia, it means seamless access to several other CIS markets. “This is the best part of trading with Russia.”
Easy to enter
While businesses will go where demand exists, Indian companies seem to have confidence about doing good business in Russia.
Ease of doing business, answers Saroj Ranjan, Marketing Manager at Moscow-based export-import agency Avanis. The Russian government is taking the extra step to streamline regulatory compliance and waive several fees. The paperwork to do business in the country is considered troublesome and there is little room for grievance redressal. But all that is changing now. “This is a big help because this is the thorniest part of the trade cycle in Russia. They are truly rolling out real ease of doing business to spur trade with India,” he says.
Chauhan’s Moscow-based consignee, Mars Holding Ltd, says despite the uncertainties and troubles caused by the conflict, the firm has been able to do business with Indian partners without any major issues. Director of the firm, N Saruev, urges Indian suppliers to seriously look at the Russian market. “Bilateral trade is being made seamless, as both governments are actively easing supply chain bottlenecks,” he says.
A big opportunity for small and medium enterprises
The uptick in bilateral trade extends to several segments. Dozens of Indian retail players are said to be on a deal-signing spree with their Russian counterparts. “This is a golden opportunity for all Indian home-grown brands to capitalise on the large Russian market,” Susil Dungarwal, founder of retail consultancy firm Beyond Squarefeet Advisory, recently told RT News. “There are several domains where we are comparatively better or as good as any western brand.”
He confirmed that 4 Indian retail brands have signed agreements with Russian firms and half a dozen more are expected to follow suit soon. Dungarwal refused to divulge the names, as his company is involved in partnership talks with companies on both sides.
Russia is India’s 25th largest trade partner, up from 32nd a decade ago, says Vijay Kalantri, Chairman of trade promotion organisation MVIRDC World Trade Centre. Our merchandise export has grown 45% and import by 50% in the last decade. However, the Mumbai-based analyst flags the issue of the trade deficit that has more than doubled to $6.6 billion in the last decade. “India can reduce this trade deficit if it can realise the untapped export potential, worth $2.5 billion to Russia, as estimated by the International Trade Centre, Geneva. There is potential in motor vehicles, footwear, aluminium oxide, agrochemicals, gems and jewellery, and cotton textiles, among others. There is also scope for pharma and agro exports.”
Friendlier in Russia
Anil Chaudhary, former chairman of SAIL and the Chairman of Metals and Minerals Committee of PHDCCI, is more specific about the industries that can seize this window. “Opportunities exist in FMCG, consumer durables, packaged food items and dairy products, ready-made garments, footwear, toys, textiles, auto-spare parts. The demand for these products has gone up greatly as supplies from EU nations have dried up.”
Russia has been a market for cosmetics, pharmaceutical products, leather and textiles, agricultural goods, components for machinery and equipment, telecommunications equipment, and organic chemical products from India. For India, major import gains have been in petroleum & gas, gems & jewellery, fertilisers, iron & steel, and paper. Half of the imports are petroproducts. Russia is already India’s second-largest oil supplier, as of May. The numbers are likely to substantially surpass last year’s figures.
The nations have “piggybacked” on each other from the historical days of the Non-Aligned Movement, says Vishal Dhingra, Chairman, Buying Agents Association. “Russia, being a communist nation, was quite isolated on the global stage at that time, and India had little foreign currency reserves. Clearly, the bilateral trade for both has always focussed on win-wins. In Russia, India gets a big, independent captive market, where the US dollar is not technically needed as the rouble trade flourishes,” says Dhingra. It’s also a fact that besides being a gateway to CIS markets, the ship dispatch time from India to Russia is less compared with several markets.
The trade route would also get a boost as the multimodal International North-South Transport Corridor, the shortest route to Russia, is now operational through Iran. Several players are already making use of this trade route for easier shipments.
Russian aluminium tycoon Oleg Deripaska recently told ET that Moscow desires to build connectivity, capital markets and financial infrastructure with India – similar to the model built over decades with Europe – to push bilateral trade to $120–150 billion over the next decade.
Areas of concern
While Russian authorities have been easing compliance to facilitate trade, there is a limit to the extent they can help, given the role of external upheavals at play.
Apart from supply chain disruptions, the conflict has complicated business tractions by making it difficult for companies to get insurance while moving goods to and from Russia. Indian importers are facing delays in consignments and cancellation of deals due to the geopolitical developments.
They have not been able to do anything about the price volatility and uncertainty in market rates – be it container rates or the timeline on payments from Russian consignees. AK Saxena, President of the Indian Importers’ Chambers of Commerce &; Industry, says imports from Russia have dipped mainly because of payment and transportation issues. He suggests that Indian companies strictly adhere to the standard operating procedures in payment guarantee and logistics arrangements.
Freight rates are a problem, too. A senior member of the All India Rice Exporters Association says a leading shipper charges $5,000–$5,500 per container for Russia-bound freight. But it quotes about $1,000 less to Pakistani firms, presumably because the companies in that nation are not in a position to pay these prices. “The rice imported by Russia from India attracts a levy of 10%, whereas from Pakistan it is at about 7.5%,” he adds. “Several shipping lines are also putting consignments on hold.”
Another challenge is making payments for trade with Russia. The sanctions make it impossible to use the dollar as a medium of exchange. But that can be resolved by establishing a full-fledged settlement ecosystem supported by currency swaps, as well as new-age mechanisms such as digital currency and cryptocurrency.
”Move with caution”
Traders could use paper-based letters of credit and put in place a payment system mechanism in local currencies, says KiranRambhia, President, Brihanmumbai Custom Brokers Association. That would help the export of key agri exports. But he also adds a note of caution for Indian firms. A nation would try to withstand an economic crisis by providing several perks so that its economy doesn’t slip into a recession. “Indian companies should not be mesmerised by these perks and indulge in overtrading,” he adds.
In terms of the dos and don’ts, Chaudhary suggests traders keep their exposure limited. “Russian banks are sitting on piles of cash. Try to get financing, along with imports. Take an unsanctioned bank like GazpromBank as the principal lender. Take commodity pricing and a loan denominated in the rupee, in which case interest may be linked to a transparent Indian benchmark.”
Experts also point out that Russia needs to do more to promote market access for pharma and agro products. Some pharmaceutical exporters in India have complained about non-tariff barriers, such as a mandatory bioequivalence study with Russian patients, to allow drugs into that market. In the agro product space, Indian dairy exporters have said the Russian regulator does not allow import from foreign farms with less than 1,000 cows, says Kalantari.
There are several lucrative reasons for Indian firms to invest in getting a bigger share of the Russian market. But it would be wise to move ahead with caution. For Capital Ideas courtesy of The Economic Times