Russia-India Trade To Get Back On Track With The Chennai-Vladivostok Maritime Corridor

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  • Foreign Ministers meet this week
  • Maritime route seen as a crucial tie
  • Potential India-EAEU FTA 
  • Planning Putin-Modi and BRICS Summits 

Reviving the proposed Chennai-Vladivostok Maritime Corridor and finding ways to increase bilateral trade, which is currently worth US$10-11 billion, will be among the key points on the agenda when Indian foreign secretary Harsh Vardhan Shringla visits Moscow this week.

The 17-18 February agenda will see both sides discuss possible dates for the India-Russia annual summit to be hosted by India this year, in addition to the 2021 BRICS summit, also to be hosted in New Delhi.

Shringla’s meetings with his Russian counterparts will send a signal that India’s ties with Moscow are independent of its ties with the US and in India’s national interest.

Bilateral investments between India and Russia have risen to US$30 billion because of investments in oil and gas, but two-way trade has languished at just US$10-11 billion. Primary reasons for stagnant trade is the lack of interest from the Indian private sector, the structure of the Russian economy, and lack of information on the potential of the two markets. Delhi though wishes to change this.

Shringla is expected to discuss the long-term trajectory of India-Russia relations, especially in the Arctic and the Russian Far East. PM Modi had signalled India’s interest in the Russian Far East by announcing a $1 billion credit line for the region during his visit to Vladivostok in September 2019.

The proposed Chennai-Vladivostok maritime link would enable cargo transfers between Chennai and Vladivostok in 24 days, in comparison to over 40 days currently taken to transport goods from India to Far East Russia via Europe. This proposed maritime route could be transformed into a corridor that would interface with the Indo-Japan Pacific to Indian Ocean Corridor, along China’s own OBOR maritime routes. Taken as a whole, these would connect the entire South East Asian region through road, shipping, and rail links.

Russia’s Far Eastern Federal District (twice the size of India) is the largest but the least populated of the eight federal districts of Russia, with a population of roughly 6.3 million. India was the first country to establish a resident Consulate in Vladivostok in 1992. Current engagement of India with the region is limited to isolated pockets, such as the Irkut Corporation in Irkutsk where the Mig and Sukhoi aircraft are built, over US$6 billion worth of investments by ONGC Visesh Limited in the Sakhalin 1 project, and recently – the Eurasian Diamond Centre, where the Indian Group KGK, a global leader in gems and jewelry, expects to employ up to 500 people at their new facility to polish and cut Siberian diamonds before releasing them on the international market. KGK have been granted a certificate of residence for the Vladivostok Free Trade Zone, giving them tax and customs preferences, and lower shipping costs.

The Russian Far East region has a wealth of natural resources, including land, timber, mineral, and other resources, such as tin, gold, diamonds, and oil and natural gas. The Russian government has announced several initiatives to attract investments in the region, including an agricultural SEZ, the Vladivostok Free Port Project, and also invites participation in the timber industry, mining of mineral resources (coal and diamonds), and precious metal deposits (gold, platinum, tin, and tungsten). Opportunities for collaboration for Indian companies include such sectors as agriculture, mining, port development and infrastructure, diamond processing, and agro-processing.

India and Russia are also coming together via overland routes, such as the International North-South Transport Corridor, which connects India via Iran and Azerbaijan to Russia and provide access to Europe and Central Asia.

These new trade routes will have particular impact when India’s Free Trade Agreement with the Eurasian Economic Union is finalized, a deal that is currently being negotiated and that could be announced at the upcoming Putin-Modi summit.

Russia is keen to develop ties with India, it offers a huge consumer market for Russian goods, while the Russians have long enjoyed Indian teas, spices, and fabrics. The move to open up alternative sea routes makes economic and strategic sense for both. The connectivity also secures access to natural resources that are crucial for a growing economy like India, and counterbalances China’s regional influence, and especially in Russia’s Far East.

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Russia Briefing is written by Dezan Shira & Associates. The firm has 28 offices throughout Eurasia, including China, Russia, India, and the ASEAN nations, assisting foreign investors into the Eurasian region. Please contact Maria Kotova at russia@dezshira.com for Russian investment advisory or assistance with market intelligence, legal, tax and compliance issues throughout Asia.

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