BOFIT Weekly Review 2016/42
Russia and India agree on new arms sales, but overall trade between the countries continues to shrink
During the BRICS summit in Goa last week, India revealed it was buying new weapons systems from Russia. In recent years, India has been Russia’s most important arms customer. The Stockholm International Peace Research Institute (SIPRI) estimates that about 40 % of Russian arms exports went to India during 2011−2015.
Under the current deal, India will buy, among other things, an S-400 air defence system. The deal, which will take several years to perform, is valued at about $5 billion. In addition, India and Russia agreed on local assembly of certain equipment such as Kamov military helicopters in India. The deal also included purchase of two frigates capable of launching cruise missiles, with India later producing two similar frigates in its own shipyards. Russia continues work on the two nuclear reactors at the Kudankulam power station in Tamil Nadu. The first Russian-built reactor was commissioned in October 2013 and the second last week.
In conjunctions with the BRICS summit, Russia’s state-owned oil company Rosneft announced that it was involved with a group of international investors in the joint acquisition of the Indian oil company Essar Oil. Rosneft will take a 49 % ownership stake. The deal, valued at $13 billion, should be finalised by the end of the year. Rosneft is also preparing to sell a further 11 % stake in its Vankorneft subsidiary to the Indian ONGC Videsh. After the acquisition, Indian oil companies will control 49.9 % of Vankorneft.
With the Russian economic recession and the ruble’s depreciation, Russia’s trade with India has declined in recent years. Russian exports to India in the first eight months of this year were worth about $3 billion and imports from India about $1.5 billion. The dominant product categories for Russian imports from India were pharmaceuticals (nearly a third) and electronic equipment (slightly over 10 %). In Russian exports to India precious gems accounted for nearly 20 % and machinery & equipment for slightly over 10 % of exports.
Neither India nor Russia are very important to each other as trading partners. India accounts for only 1–1.5 % of Russian exports and Russia about 0.5 % of Indian exports.