CHRISTMAS AT THE KREMLIN

Modi in Moscow: Can oil, defence, and nuclear energy still bring India and Russia closer?​

Obsession
Modi's Moment
Quartz india
Obsession
Modi's Moment
Quartz india

Indian prime minister Narendra Modi’s trip to Moscow on Dec. 23 for the 16th India-Russia annual summit is curiously timed. It comes nearly two years into his tenure, and only after he has travelled to more obscure destinations such as Mongolia and Fiji.

However, with this trip, Russia’s own absolutist, president Vladimir Putin, should feel important; Modi usually travels to more than one country during his foreign jaunts. This time, Moscow is his exclusive destination, although reports suggest he could make a quick stopover in Kabul, Afghanistan, on his way back.

Putin had last visited India in 2014 and, in midst of the Ukraine crisis, his trip was largely seen as underwhelming and distracted. Nonetheless, the India and Russia dynamic has stood the test of time despite political changes in Delhi and Moscow. But, chafed by Modi’s delayed outreach, the Indo-Russian bilateral machinery isn’t as well oiled it once used to be.

The bilateral trade between India and Russia has been hovering around $10 billion (Rs66,250 crore) since 2012. In fact, between 2012 and 2013, it dropped to around $9.5 billion (Rs62,937 crore), substantially short of the initial intended target of $15 billion (Rs99,378 crore) by 2012. Still, both countries have continuously discussed ways to boost bilateral trade to $30 billion by 2025, with a specific target to enhance mutual direct investment by $15 billion.

For Russia, India is often looked upon as a captive market for its defence and, to some extent, its energy industries. Even during the upcoming trip, these two industries are likely to take centre stage. But, it may not be as simple as before when New Delhi simply pulled out the chequebook, since part of Modi’s strategy now includes pushing his signature “Make In India” programme. Therefore, to boost manufacturing at home, India will presumably look for much more than a traditional buyer-seller relationship.

Doubling down on defence

Even though a traditional buyer of weapons from Russia, India has moved closer to the US and others in defence procurements in recent past. Serviceability issues, spare parts problem, significant cost overruns and other factors have caused friction with Moscow. This, along with a growing Indian economy’s ability to buy better, more reliable defence technologies, has added extra pressures to the relationship. Analysts see Moscow’s recent rapprochement with Pakistan as a reaction to closer India-US defence ties.

Immediately preceding Modi’s visit, India is readying to sign up for nearly $9 billion (Rs59,629 crore) worth of deals that include purchase of the state-of-the-art S-400 “Triumf” air defence systems and jointly manufacturing more than 140 Kamov Ka-226 light helicopters. Beyond this, advanced negotiations for leasing new nuclear submarines and jointly manufacturing Grigorovich-class frigates are also expected to take place. The S-400s will give India an unprecedented edge over Pakistan, while the Ka-226s will replace the ageing fleet of the workhorse HAL Chetak and Cheetah light helicopters.

Energy partnership

Russian oil behemoth Rosneft’s purchase of a 49% stake in Essar Oil in July 2015 is one of Moscow’s biggest strategic investments in India in the recent past. The deal, thought to be worth nearly Rs10,500 crore, will give Rosneft access to India’s second largest oil refinery in Vadinar, Gujarat. Under the agreement, Russia will supply Essar Oil with five million tonnes of crude oil this year, increasing it to 10 million from 2016 for a period of 10 years. For Moscow, this deal reflects not only a serious investment but also a strategically important move. The Russian economy is hugely dependent on international demand, and the stake in Essar Oil will allow Rosneft to sell its products with some ease in growing regions such as Africa and South East Asia.

Also, on the table during Modi’s visit are going to be preliminary discussions on a proposed gas pipeline between India and Russia, via China. The idea saw some movement during the summit between Putin and former prime minister Manmohan Singh in 2013, and a detailed outline of the project is expected to be tabled for Modi and Putin to discuss. But Beijing’s views on the plan aren’t entirely clear.

Beyond oil, nuclear power is perhaps the biggest partnership being developed between India and Russia. During Modi’s visit, the two countries are expected to sign agreements for units 5 and 6 of the Kudankulam nuclear power plant in Tamil Nadu. While the issues of cost overruns for the project are expected to remain a hindrance, Modi’s willingness and tact to close pending deals may lead to an early resolution.

Economic headwinds

Modi is also taking a large contingent of India Inc.’s top brass with him to Moscow, with a restive domestic constituency demanding more concrete outcomes from his numerous foreign trips. Meanwhile, for Putin, India remains a critical ally and market in an era where Russia is vulnerable to Western sanctions. On the global geo-political front, Moscow has found support for its campaigns in conflicts such as those in Crimea and Syria from Delhi.

Both Modi and Putin have reportedly high popularity ratings at home, but both of them are also facing similar problems. The different but equally challenging economic environments that both leaders face aren’t likely to improve quickly. But an improved India-Russia dynamic would benefit both.

home our picks popular latest obsessions search