The Russo-Indian relations’ development dynamics are increasingly characterised by interdependence and attempts for more engagement. The two countries share plans varying from sea transport to rail freight, joint ventures and payment mechanisms, but not all are necessarily feasible. Nevertheless, they lay the foundation of what could become a concrete partnership with transport and the INSTC at its core.

Well, Russia and India did not just become ‘friends’ now. The ties binding them were already substantial, but Russia’s marginalisation from the West necessitated reconfiguring their relations. Concerning the International North-South Transport Corridor (INSTC), both countries advocated its development as they could see certain benefits from its operation. Nevertheless, they never approached the project collectively.

As they gradually realise, though, that the corridor could become a lifeline connecting the two economies, both are taking more initiatives to find ways to facilitate their cooperation and bilateral trade. In fact, India is joining the game dynamically for the first time.

Growing trade

The trade between Russia and India is on the upturn. According to the Straits Times, Russian exports to India increased five times between April 2022 and February 2023 compared with the previous corresponding period (from 41,56 billion US dollars to 55,6 billion US dollars). The increase is attributed mainly to Indian oil imports and military equipment.

Simultaneously, Indian exports to Russia are not as impressive. For the same period, Indian exports scored at 3 billion US dollars. India, though, is currently facing a general slowdown in exports, which it is attempting to tackle. In this sense, the Russian market is one of the primary expansion targets. It is logical, thus, that an Indian delegation visited Russia for four days at the end of April to explore possible synergies, especially in the field of agricultural exports.

Many experts claim that both countries could benefit significantly from enhanced cooperation. For instance, Russia could substitute the European energy market with India’s. At the same time, the latter could secure a stable provider of energy supplies, industrial materials, and fertilisers.

The Rupee-Ruble payment mechanism

A point of discussion lately has been the possibility of India and Russia launching a Rupee-Ruble payment mechanism to facilitate payments between the two markets—reports from Asia claim that India aims to implement a similar solution with Iran. For the record, Russia and Iran have already connected their interbank payment systems to make payments, investments and joint projects easier.

The fact that both Russia and Iran are sanctioned and excluded from SWIFT pushes India to scrap financing solutions. The Rupee-Ruble payment mechanism is something the country has considered seriously for some time, with the Indian Ministry of Finance appearing to be leading a project examining the feasibility of such a solution. The idea of such a payment mechanism is not new. It was conceived in 1953 to facilitate Indo-Soviet trade and is based on some simple principles, which among other things, dictate that all payments between the two countries are made in Indian Rupees.

Whether the mechanism will be implemented is still a big question since many issues require resolution, one of the most significant being the exchange rate differences between the two currencies. In any case, just the consideration of this mechanism indicates that India and Russia do not plan to break ties and distance themselves from each other any time soon.

Cooperation in the Caspian Sea

Understandably, the growing trade between Russia and India and the attempts to facilitate bilateral payments are also interrelated with the development of the INSTC, which could become one of the main trade and transport channels between the two. A survey by the Federation of Freight Forwarders Associations of India (FFFAI) found that a functional INSTC will reduce transport costs and transit times compared to the Suez Canal alternative.

Of course, the INSTC still faces bottlenecks, especially concerning railway infrastructure, that no one seems willing to finance. This may be why Vladimir Putin has instructed the government and the Russian Union of Industrialists and Entrepreneurs to find private investors to finance INSTC infrastructure projects.

In any case, building railway infrastructure can be time-consuming, which may be another reason behind the lack of willingness since all the parties involved in the corridor seek immediate solutions. Another factor that should not be overlooked is that INSTC’s rail routes pass through relatively tense and unstable regions, such as the Caucasus, and touch upon sensitive borders like the one between Iran and Azerbaijan.

Consequently, the multimodal route crossing the Caspian Sea between Iran and Russia is preferred since it is more or less complete and ready to serve the corridor. It is no surprise that Russia and India are in talks to establish Caspian Sea joint ventures for shipbuilding and ship repair, indicating that the transport focus now turns to this region. Such joint ventures could boost the Caspian short-sea capacity significantly.

The talks coincided with some data updates from the Caspian Sea. Specifically, according to the Iranian Khazar Sea Shipping Lines Company, which operates a line between Iran and Russia through the Caspian Sea, cargo transit on the North-South axis has experienced a substantial surge (360 per cent since the service was launched). At the same time, it is far from reaching its capacity limits, while the transport demand keeps rising.

Also read:

• Russia, Kazakhstan and Turkmenistan form joint venture on INSTC

• From Moscow to Mumbai: geopolitical powerplay determines the corridor’s future

• Russia-Iran streamline interbank payments for more transport and investments