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Business Report RUSSIA&INDIA THE ECONOMIC TIMES IN ASSOCIATION WITH ROSSIYSKAYA GAZETA, RUSSIA

TRADE: Moscow to substitute 15-20 percent of imports; India prepares a list of over 20 items for export

STATISTICS

As tit-for-tat sanctions rage on, India eyes Russian market

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Russia’s retaliatory food ban on products from the EU and US in the wake of Western sanctions has opened new avenues for Indian exporters to fill the gap in a host of areas, including meat, dairy products and pharmaceuticals. AJAY KAMALAKARAN RIBR

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Wide avenues for Indian exporters Informed sources tell RIBR that the Russian authorities have reached out to India to help fill the potential gap. Recognising the potential, India’s Commerce Ministry has come up with a list of around 20 items that could be exported to Russia. This includes optics, pharmaceuticals and meat. According to India’s Agricultural and Processed Food Products Export Development Authority (APEDA), buffalo meat exports amounted to $4.3 billion in the 2013-14. There have been concerns from Russian agriculture and veterinary sanitation inspectors about the conditions in which buffalo graze in India. The main markets for Indian buffalo meat exports, including Malaysia, Mauritius and the Seychelles, however, have had no outbreak of foot-

Composition of Russian food imports from EU REUTERS

ndia looks to cash in on a potentially huge Russian market in the wake of the plunging/worsening economic ties between Russia and the West. After enduring a few rounds of sanctions from the West over Russia’s alleged role in supporting rebels in eastern Ukraine, Moscow hit back with a one-year ban on fruits, vegetables, meat, fish, milk and dairy imports from the US, the European Union, Australia, Canada and Norway. The sanctions announced by Russian Prime Minister Dmitry Medvedev follow the latest round of punitive actions from the West, under which Russia’s stateowned banks were cut off from western capital markets, and its defence and energy firms were banned from importing hi-tech western equipment. The European Union stands to lose the most from the Russian ban on food imports. According to data from the Institute for Complex Strategic Studies (ICSS), Russia buys 31.5 percent of its meat, 42.6 percent of its dairy products and 32 percent of its vegetables from Europe. In absolute terms, the EU could lose up to $16 billion. The Russian government is looking to encourage domestic food production and stimulate import substitution. However, in the short run, the only viable option is to import food from other markets. Russia is “unable to immediately fill the gap with its own products,” says Alexei Skopin, head of the Department of Regional Economy and Economic Geography at the Higher School of Economics in Moscow. “With the right policy, only in a year 15-20 percent of the goods affected by the sanctions would have been substituted with Russian products. In the meantime, Russia will have to depend on foreign suppliers.”

Experts believe that products imported from the EU and US can be substituted with goods from Asia and Latin America.

$16 bn

‘Indian food items very competitive in price’

i.e. the amount EU could lose due to Russia’s food ban. Currently, Russia buys 31.5 percent of its meat, 42.6 percent of dairy products and 32 percent of vegetables from Europe.

$540 m is the value of total dairy products exported by India last financial year. Other meat exported by India amounted to $4.3 billion in 20132014.

and-mouth disease. Russia had previously banned imports of egg products from India over sanitary concerns but the matter was amicably resolved in February after assurances from the Indian government. Russia also imports around 50 percent of its dry milk and cheese from abroad, mainly from the former Soviet Baltic republics and Finland. Analysts believe that Indian exporters can tap this market as well. India exported $540 million worth of dairy products in the last financial year according to APEDA figures. They, however, add that India Inc.

India’s Ministry of Commerce and Industry is closely monitoring trade relations between Russia and the Western countries and has already sent recommendations about increasing exports to Russia to the Indian Export Promotion Council, Russian Trade Representative in India Yaroslav Tarasyuk told RIBR. “We are talking about more than two dozen commodities, including certain types of machinery and equipment, vehicles and parts and components for aircraft and aerospace industry, pharmaceuticals, plastics and meat,” he said.

needs a focussed strategy for the Russian market. “Indian producers and exporters have to improve the quality of their products and services, including timely delivery and quality packaging,” says Uday Mandavia, an independent business consultant who has been working with Russian companies since 1999. “Indian products, other than tea, are not associated with good quality in Russia; so better marketing and awareness strategies are also required,” he adds. The ‘Made in India’ trade show that is being organised by the Federation of Indian

“India is ready to supply to Russia significant volumes of buffalo meat, egg powder, seafood and nuts,” explained Tarasyuk. “Indian food items are very competitive in price. The only thing that has hindered their expansion into the Russian market was the strict sanitary and phytosanitary requirements,” he said. Thus, if India wants to take advantage of the current situation, it will have to upgrade veterinary supervision for producers of goods directed towards the countries of the Customs Union.

Opinion Poll: Will Western sanctions harm Russia?

Export Organisations, with the support of the Indian Embassy, in Moscow next month will provide an opportunity to around 125 Indian companies to showcase their diverse products in Moscow. Indian exporters also stands to gain from a wider market with the Eurasian Economic Union, comprising Russia, Belarus and Kazakhstan, set to come into effect on January 1, 2015. India is negotiating a comprehensive economic partnership with the union and Russia’s immediate need for food products may give it a fresh impetus to speed up talks.

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In early August, suddenly three senior American officials, in quick succession, visited India –- Secretary of State John Kerry, Secretary of Commerce Penny Pritzker and Defence Secretary Chuck Hagel. There are many reasons for such attention being lavished on India, but it’s time to figure out the real motive. It’s a desire to turn India not just into a partner, but also an ally and proponent of American interests in Asia and possibly wrest it out of the BRICS – a union of countries that in the medium term will be able to break the monopoly of the US in the world economy and politics. Amid media frenzy, many commentators forgot that India’s Prime Minister Narendra Modi was considered a persona non grata in the US, and the State Department had

denied him an entry visa. Now the US is courting Modi and is eagerly looking to welcome him in September. There are a host of other unresolved issues. Despite heavy-duty lobbying, Mr Kerry and Ms Pritzker failed to make India change its position on the draft agreement in the WTO on the easing of trade rules. The American emissaries also did not succeed in making amends for the negative feelings caused by shocking revelations about American spying on the leaders of the Bharatiya Janata Party in India. These issues are not just bilateral; it is reflective of the US desire to preserve a unipolar world order that has led to its stubborn refusal to admit its defeat in the Greater Middle East. This same striving underlies the current crisis in Ukraine, initiated by the US in order to achieve several strategic objectives –

to drive a wedge in relations between Russia and the EU and grab a larger share of the European gas market. One wonders, why is India needed here? Failures of American foreign policy and the increasing complexity of the economy have led to the fact that Washington simply does not have the resources to realise its much-hyped Asia pivot policy. Meanwhile, China – the main geopolitical rival of the US – is not only growing in economic power, but also political influence. Therefore, the main strategic goal of Washington in Asia and the Asia-Pacific Region has become the shifting of the burden of confrontation with China on regional powers, primarily Japan and India. However, the government of Narendra Modi has demonstrated that India’s focus will be on the development of good relations with its neighbours in the region, including China. This was evident in Modi’s participation in the highly successful BRICS Summit in Brazil, and will be again reflected in the visit of Chinese President Xi Jinping to Delhi in September. Against the background of the US’ fears of the dollar losing its monopoly, the BRICS initiative on the creation of the Development Bank, in which the calculations will be made in local currencies, poses a huge threat, in the long term, to the monopoly of the US and international financial institutions established under the Bretton Woods system. In the future, in two or three

decades, what looks like a timid sprout (BRICS economies) is capable of growing into a mighty tree. This explains the increased activity of the US in the “Indian Direction”. Now it seems that for Washington, the most important task is to drive a wedge between the BRICS countries. This explains the policy of imposing sanctions against Russia, and the desire to represent Russia in the role of the “aggressor”, and in the unambiguous threats against China, and attempts to flirt with India. If Washington succeeds in pulling out at least one “Eurasian” link from the large BRICS association, then a tombstone will be placed on the entire association, which may allow the US to keep the inertia (or illusion) of a unipolar world for a few more years. Therefore, attempts to flirt with India should not be taken as a sincere desire for mutually beneficial cooperation. In all of its foreign policy actions, the US has always pursued only its own interests. Thus, if at this stage those interests make it necessary to establish relations with a particular country, it does not mean that after a while the US will not make a turn in the opposite direction. The views expressed are of the author’s only.

The author’s blog indrus.in/ blogs/ the_ outsiders_insight

Russia and India Business Report  
Russia and India Business Report  

August, 2014

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