Russia and India increase trade volumes again in 2023

Relations between Russia and India have experienced a renaissance in recent years. In 2023, India became one of our leading trading partners; in ten months we reached a trade turnover of $55 billion (in 2022 it was $35 billion for the whole year). This country has already overtaken China to become the main importer of Russian oil. The current energy-economic union is forced: India produces only 30% of its own oil and gas and therefore imports large quantities of fuel.
"Russia has become one of India's most important trading partners. We have a leading position in the supply of hydrocarbon raw materials and provide more than a third of India's imports of mineral fertilisers, agricultural and diamond complex products," Russian Ambassador to India Denis Alipov said at the plenary session of the XIV India-Russia Business Dialogue, citing Indian statistics.

Today, up to half of India's GDP is generated by the services sector, and the country is the flagship of offshore programming. But despite the obvious successes, programming cannot employ hundreds of millions of workers. That is why the Indian government is making a long-term bet on labour-intensive industries.

In historical terms, the country's economy has only just begun to industrialise. Much has been done in recent years to create whole industries: steel, automobiles, chemicals and railways. There are ambitions to develop aircraft manufacturing, electronics, aerospace and many other industries.

Of course, India is still very far from its competitors, especially China, South Korea and Taiwan, and it will take decades and trillions of dollars of investment to catch up. But it has the world's largest per capita sales market and huge economic growth rates.
Last year was a milestone: India's population surpassed China's, reaching 1.423 billion. But while the two countries now have comparable populations, there is a significant difference: China's demographic curve has already started to decline, while India's birth rate continues to rise. The gap is projected to widen significantly by 2050: 1.34 and 1.7 billion people respectively.

Despite the phenomenal increase in India's nominal GDP in recent years, its GDP per capita is still below the global average. By the end of 2022, the country will rank 169th in the world in terms of this indicator - $2,466 per person. The potential for growth even to the Chinese level of $12,800 is huge.
If we are to believe Goldman Sachs' long-term forecasts, it is not the availability of resources or technology that will drive economic development, but demographics. Extrapolating today's trends within the generally accepted boundaries of states, analysts argue that by the end of this century, of the G7 (the world's seven largest economies in the 1990s, excluding China), only one will remain in the top 7 - the United States. The place of those who have left will be taken by Asians, mainly China, India and Indonesia.
Russia's old economic partners - Germany and the UK - will be overtaken in terms of GDP by Egypt, Nigeria and Pakistan. So the shift of domestic commodity exports to the East and South has long been predicted, but now our logistical and political focus is shifting too.
For Russia, such a shift in the global balance of power is extremely beneficial: with two emerging economic centres, India and China (which, incidentally, are in conflict with each other), we have close allied relations. Military equipment from both countries often proudly bears the "Made in Russia" label.
But relations between our countries are not limited to military-technical cooperation. For example, Russia's Rosatom is building India's largest nuclear power plant at Kudankulam: two VVER-1000 units are already in operation, two more are in the final stages, and the remaining two will be commissioned before the end of the decade.

Rosneft has a near controlling stake in Nayara Energy Limited. The company's main asset, in addition to the port and distribution network, is the country's second largest refinery, which can process 20 million tonnes of oil a year. With a Nelson Complexity Index of 11.8, it is one of the ten best factories in the world. Sibur, Transmashholding, MTS, NLMK and other major Russian companies have also invested in Indian companies.

But India also sees our country as a partner. In particular, the construction of a gas pipeline has been discussed for many years (in 2021 this idea was abandoned, but after the events of 2022 the project may become relevant again). We are also working together to build a new north-south transport corridor across the Caspian Sea.
The reorientation of Russian exports towards the East is an appropriate response to the European embargo on domestic oil and coal. There are not many markets of our size in the world, and the fact that the Indians have created huge demand by taking all the surplus sanctioned oil is a great success.

But it is better to call the situation co-dependence: Russia's share in the structure of oil imports to India today is almost 50%. This figure is critical: any interruption in supplies could trigger a fuel crisis in the country.

But our seemingly forced union is actually predetermined by geography, geology and, above all, demography and economics. The Indian government is forecasting GDP growth of 7.3% for the current fiscal year (1 April to 31 March). It is the fastest growing major economy, well ahead of China, whose economy has slowed to 5% in recent years.

Goldman Sachs expects India's GDP to grow by 6-7% a year. Given the current size of the country's economy (third in the world in PPP terms), these are gigantic figures. To ensure such a take-off, energy is needed: oil, gas, coal, which means that Russian exports will be in demand here for at least a few decades. Another question is what India can offer in return.
Today, Indian industry is the third largest in the world, second only to China and the US, but already two (!) times larger than Germany. Industrial production, including construction, accounts for about 25% of India's GDP. Manufacturing accounts for about 16-17%, much higher than in Russia (13.8%) but lower than in China (27.5%). The largest sectors are the production of iron and steel, minerals and precious metals; the chemical and automotive industries are actively developing.

And this is not the end of the story. Two-thirds of the country's population still lives in rural areas. More than half of the workforce is employed in agriculture, which accounts for only 20% of the Republic's GDP. Yes, this state is an agricultural giant, the world leader in banana production. In terms of wheat production (more than 107 million tonnes per year) and rice (120 million tonnes), it is ahead of Russia, but behind China. India is the world's largest producer of cotton and supplier of cotton fabrics, produced in 750 factories. Fabrics account for a third of India's exports.

The list goes on. But the country's agriculture is predominantly extensive, and the Indian economy, unlike the West and China, has huge resources to mobilise for an industrial breakthrough. Given the gender and age structure of the population, between 250 and 500 million people could be added to the labour force in the coming decades - huge reserves that could seriously affect the global economic balance.
A decade ago, in 2014, the country's government launched a landmark programme to modernise the economy - Make in India. The aim of this political-economic programme is to attract capital and technology in exchange for cheap labour. The initiative targets 25 sectors of the economy to create jobs and improve skills, with the aim of making India a "global hub for exports, design and manufacturing".

While not all of the programme's ambitious goals have been achieved, the programme itself has brought many benefits by opening up the country to global companies: doing business here has become much easier, and legal, foreign trade and tax procedures have been simplified. As a result, Indian industry began to grow at a tremendous pace. In 2015, it overtook China and the United States in terms of the volume of foreign direct investment it attracted.
Another result of the programme was the creation of the world's second largest steel industry, which produced 124 million tonnes last fiscal year. Over the course of a decade, more than $17 billion has been invested in the industry. Today, there are more than 30 large and several hundred small steel mills operating in the country. But plans for the next five years are even more ambitious: India wants to increase production to 300 million tonnes of steel a year. Such a breakthrough requires a huge amount of raw materials - iron ore and coking coal. And while there is no shortage of iron ore in India (the country is the world's fourth largest producer after China, Brazil and Australia, covering most of its needs), there is a clear shortage of coking coal.

India has the world's fourth largest coal reserves and the world's second largest coal production. But as the economy grows, demand for coal will increase, especially for metallurgical grades, which are in short supply in the country. The reorientation of Russian coal exports from Europe to India is therefore also a natural process.
One of the most important uses of steel is in the automotive industry. Last year, the Indian car market became the third largest in the world, with more than 4.2 million cars sold. Only China (24 million per year) and the US (13.7 million) sell more cars.

At the same time, the market is growing dynamically. According to statistics, there are only 22 cars per 1,000 people in India, and only 8% of families own a car. By comparison, in Russia and China this figure is much higher - 300 cars per 1000 people. This means that the number of cars sold and driven in the country could increase many times over in the coming years.

The Indian car market is very different from other countries. Many global companies are developing dozens of models specifically for the country, and both local and foreign companies are present in the market. There are more than 40 engineering or assembly plants in India; the recognised leader is Maruti Suzuki, a division of Japan's Suzuki, which sells every second passenger car in the country.

In the commercial vehicle sector, the leader is local company Tata Motors. In addition to the Indian equivalents of Gazelles, the company produces tractors, buses and trucks. The Mahindra Group is a leading manufacturer of tractors and construction equipment. In general, this segment is highly developed in India: every third tractor in the world is produced and sold in the country.
The peculiarities of the local economy and climate create another very popular niche among the population - two-wheel transport. Hero MotoCorp is the leader here, with annual sales of 8-9 million units.
The automotive industry is pulling other sectors with it, most notably the chemical industry. The Indian chemical industry is already the most important sector of the economy, employing more than 5 million people and generating up to 5% of GDP.

There are more than 20 oil refineries in the country alone, with a combined capacity of more than 250 million tonnes per year. And the largest and most complex oil refinery in the world is in Jamnagar, with a capacity of more than 68 million tonnes a year. To understand the scale, Russia's largest oil refinery, Omsk, can process only 22 million tonnes of oil a year.

The Jamnagar refinery was built for growth, with the prospect of expanding the domestic market. Over the past year, the plant has played a key role in redistributing Russian oil flows and is largely responsible for transforming oil-scarce India into a global fuel-sales giant. India's diesel exports have reached unprecedented levels of 0.6 million barrels per day. Obviously, as domestic consumption grows, all these volumes will be diverted to the domestic market.

The oil refining industry has already achieved tremendous success, but its prospects are even better. According to India's oil minister, Hardeep Singh Puri, the country's energy consumption is growing three times faster than the world average, and in twenty years' time India will buy one in four of the oil it exports on the world market.
Other manufacturing sectors are also developing. For example, the country is the second largest producer of fertiliser in Asia. Production of plastics, rubber and solvents is actively expanding.

Pharmaceuticals are an area of particular concern to the authorities. Today, there are more than 10.5 thousand companies in India that meet the requirements of the Food and Drug Administration. These industrial sites are owned by more than 3,000 different pharmaceutical companies. As a result, by 2022, the Indian pharmaceutical industry will rank third in the world in terms of product volume and fourteenth in terms of value, and will be the largest supplier of generic drugs (20% of global drug production). Thanks to an abundance of raw materials and cheap labour, the cost of manufacturing drugs in India is a third lower than in factories in Europe and America.

Goldman Sachs analyst Santanu Sengupta concludes: "One of the key factors in India's success is its demographics. He believes that over the next 20 years, the country will be able to use this advantage to increase its manufacturing potential, develop its services sector and improve its infrastructure.