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India has always been one of Russia’s closest and most reliable friend and
partner. The Government and business leaders of both countries are committed to
deepening cooperation in economic, trade and investment areas for the growth and
welfare of the people of our countries. Today, India and Russia are among the
world leaders in terms of economic growth. Relations between our countries cover
various areas, including effective political contacts, military, technical,
trade and economic cooperation, scientific, cultural and tourist exchanges. But
still, both countries admit that the level of economic and trade cooperation is
inadequate as compared to the strong historical political linkages between our
people. India and Russia are equally interested in expanding bilateral
cooperation and building a new model of interaction.
In Retrospect
In the Soviet era, numerous facilities in key economic sectors, including
ferrous and non-ferrous metallurgy, power generation, mining and oil and gas
industry, were built in India with the assistance of the USSR. Of the over 100
large projects of Soviet-Indian cooperation, the metallurgical plants at Bhilai
and Bokaro, aluminium plant at Korba thermo power stations in Korba and Paratu,
heavy machinery plant at Ranchi, mining equipment plant at Durgapur, coal mine
Djanjra and coal pit Mukunda, refinery at Barauni and the metro in Kolkata are
crucial. The colleges and special faculties at the universities for preparation
of specialists in metallurgy, machinery, oil and gas and other fields of
industry were organized in India with the assistance of the Soviet Union.
A high level of cooperation was largely promoted by intergovernmental agreements
under which the USSR granted long-term loans to India to implement industrial
projects. The loan funds were used to carry out technical and economic research
and design work, supply Soviet-made materials and equipment, deputing
specialists and train Indian personnel. Thousands of Soviet engineers and
technicians worked at Indian construction sites. India repaid the Soviet loans
by its traditional export supplies of tea, coffee, spices, fabrics, ready-made
clothing, footwear, etc. Cooperation was carried out on a bilateral basis,
without either side’s participation in competitive tenders.
Changing Realities
But today, times have changed. The Soviet Union no longer exists and we now live
in a completely different country – a country which has passed a long and
difficult road from a socialist, command-administrative system of economic
management to a market system based on competition and private enterprise.
Positive changes occurring in Russia today, as well as its key investment
advantages as compared to other markets, like significant market volume, growing
economy, and high level of education, comparative economic and political
stability, attract foreign partners to Russia. After the fall of the ‘Iron
Curtain’, the number of Russian tourists and businessmen travelling abroad has
increased manifold. Hundreds of foreign companies have opened offices in Russia,
looking for possibilities to invest their funds and organize business in the
country. India has also changed greatly over these years. Now, it is one of the
world’s leading countries in terms of GDP growth and in the fields of
information technologies, telecommunications, metallurgical and mining
industries, automobile manufacture, space-based technologies and engineering.
Current Situation: Investments and Projects
Today, Russia and India have to cooperate under conditions of acute competition
in the global market. Russian companies in India and Indian companies in Russia
have to fight to participate in public tenders and compete with major global
producers. And we have already achieved some positive results in this sphere.
We are glad to note that many leading Russian industrial and financial groups,
and companies have come to India and are successfully developing their business
in this country. In 2010, a joint venture between Russia’s major truck
manufacturer Kamaz and Vectra Group in Hosur (Tamilnadu) started assembling four
types of Kamaz dump trucks with a gross weight of over 25 metric tons. It is
planned that in three to four years, 40 to 70 percent of all components for
these vehicles will be produced in India and the capacity of the plant will
increase to 5000 units per year.In December last year, the largest Russian steel
producer ‘Severstal’ signed an MOU with NMDC Ltd. for setting up a 50:50 joint
venture for an integrated steel plant in Karnataka with the capacity of 2
million tonnes (1st stage) and 5 million tonnes (2nd stage) of steel per year.
The MOU envisages also captive coal mining concession in Russia and iron ore
mining concession in India. The total amount of investment for the project is
estimated at $5 billion.
Atomstroyexport, the largest Russian contractor in the nuclear industry, is in
the stage of completion of two 1,000 MW power units at the Kudankulam nuclear
power plant in Tamilnadu. At the moment, contracts for construction of two new
units at this nuclear plant are under discussion. Signed last year, the roadmap
for cooperation in this sphere provides for the possibility of constructing
Russian designed units at other sites in India. In December last year, a Joint
Venture Agreement was signed between Reliance Industries and Russian chemical
company Sibur, for setting up a butyl rubber manufacturing facility in Jamnagar.
The project envisages Russian technology capabilities for India in this
important sector.
Russia’s largest group AFK Sistema holding a controlling stake (74 percent) in
the Indian telecommunications company Sistema Shyam Telelink Ltd is building a
mobile phone network under brand ‘MTS’ in India. Sistema is planning to make
considerable investments in this pan-Indian telecom network, which is expected
to be commissioned in the coming years.
Russian heavy tractor manufacturer Machinery and Industrial Group, presented in
India under the brand name CHETRA, is also going to set up an assembling plant
close to Chennai.In February 2008, Bank VTB, a state-controlled foreign trade
bank and one of the largest banks in Russia, opened an operating branch in New
Delhi. The largest state-run savings bank in Russia, Sberbank, has also set up
its branch in India. In March this year, ‘Moscow Metrostroi’, which is the
leading contractor for metro construction in Russia, won the tender for
construction of 7 metro stations and 7.1 kilometres of two way underground
tunnels at Chennai, jointly with Gammon India Ltd.Indian companies are also
quite active in the Russian market. India actively invests in the gas and oil
industry, pharmaceuticals, real estate, retail, banking and other sectors of the
Russian economy. According to the data of the Federal State Statistics Service
of Russia, India’s accrued investment in the Russian economy amounted to $2.2
billion as of June 30, 2011.
India’s major investment projects in Russia include a 20 percent stake in the
Sakhalin-1 oil and gas project and the purchase of Imperial Energy Corporation
by ONGC Videsh Ltd (OVL), for oil production in Tomsk Region of Russia. ICICI
Bank has opened its subsidiary in Russia – ICICI Bank Eurasia. TATA Motors
organized the assembly of its light duty trucks at the Ural Auto Motor Plant and
its buses at the Volzhanin and Samotlor plants. The other major companies
include TATA Tea in the Russian food industry; Dr. Reddy’s Laboratories Ltd. and
Lupin Ltd. in the pharmaceutical sector; Berger Paints in paints production,
etc. Carborundum Universal Ltd. (Murugappa Group) has purchased an 84 percent
stake in the Volzhsky Abrasives Plant in the Volgograd region. Other Indian
companies, including OVL, GAIL (India) Ltd, Indian Oil Ltd (oil and gas sector),
Coal India (coal mining), Reliance Industries Ltd (petrochemicals production),
TATA Consultancy Services and Infosys (information technologies) are looking at
investment possibilities in the Russian economy.
During the last year, India was visited by several officials of the Russian
delegations. The most important was the visit of the Russian Prime Minister,
Vladimir Putin in March 2010 and the visit of the President of the Russian
Federation Dmitry Medvedev in December last year. Several important bilateral
documents in various fields of cooperation were signed during these visits. The
most significant of them cover technical and economic cooperation in the oil and
gas sector, joint research and development of peaceful nuclear technology, and
cooperation in the area of IT services, pharmaceutical and bio-pharmaceuticals
sectors. The governments of Russia and India agreed to take necessary efforts
for increasing the volume of mutual turnover up to $20 billion by the year 2015.
Russia and India have enormous potential for developing cooperation in the areas
of power engineering, including nuclear energy, oil and gas, metallurgy,
telecommunications, machinery and automobile industry, aircraft building,
railway and water transport, fertilizers and chemicals, pharmaceuticals,
agricultural and processed food products, readymade garments and textiles, gems
and jewellery, infrastructure, space, science and technology, including
information, bio-and nanotechnologies, banking and financial services and
tourism.
Russia – Towards Modernization
The Russian government has successively pursued the policy of improving
investment climate in the country, especially due to its current economic
modernization agenda. The Government Commission of the Russian Federation on
high technologies and innovations recently approved the list of the
technological platform in Russia for the purpose of modernization of the
national economy. Now Russian coordinators of different technological platforms
are searching for interested foreign partners. Russia envisages cooperation with
Indian partners on technological platforms, including Medicine of the future,
National Software Platform and National Super Computerized technological
platform. The coordinators of these technological platforms are the Moscow State
University, the Siberian State Medical University of the Ministry of Health and
Social Development of the Russian Federation, the Institute of Program System of
the Russian Academy of Sciences, JSC (Concern Sirius).
It is important to note that the taxation of the foreign companies is more or
less similar to that of Russian legal entities, but there are some differences
which enhance attractiveness of doing business in Russia. For example, as
regards the profit tax, a Russian legal entity has to make advance payments on a
monthly basis, while foreign companies are exempt from this requirement. As per
the Russian legislation local authorities may provide exemptions from property
and land taxes. Such incentives are offered by Saint-Petersburg, Leningrad and
Kaluga regions.
The legal framework for Special Economic Zones (SEZs) provides for broader tax
and other concessions. Tax benefits vary according to the zone type. An
industrial and production (I&P) zone, for example, may provide a reduction in
the profit tax up to 15.5 percent, and exemptions from property and land tax,
accelerated depreciation, a customs-free regime and a guarantee against
unfavourable changes in tax law.
With the aim to boost research and development activity in specific innovative
fields, foreign investors willing to work in the Skolkovo Innovation Centre
close to Moscow are offered 10-year exemptions from profit tax and property tax
and reduced social security contributions.
Business Infrastructure
The important mechanism of promotion of bilateral cooperation is an Indo-Russian
Inter-Governmental Commission on Trade, Economic, Scientific &Technical and
Cultural Cooperation, which was set up in 1992 to operate on a permanent basis.
It has working groups on trade and economic cooperation, energy and energy
efficiency, science and technology, information and communication technologies,
tourism and culture. The Commission had its 17th session in Moscow on November
18. The Indian side was headed by the External Affairs Minister of India Mr. S.M.
Krishna and the Russian side by the Deputy Chairman of the Government of the
Russian Federation, Mr. S B. Ivanov.
The Commission expressed satisfaction by the high-level bilateral contacts in
the past one year and directed that prospective areas may be explored through
further intensive exchange of delegations and negotiations. The significant
interest demonstrated by business circles of the two countries in the Fifth
India-Russia Trade and Investments Forum held on 10 November 2011 in Moscow was
also appreciated. This event was attended by nearly 300 representatives of
Indian and Russian companies, state organizations, chambers of commerce and
industry, and associations. They actively participated in the plenary and
sectoral meetings of the three round tables on pharmaceuticals, infrastructure
and innovation and commercialization of scientific research. Both sides called
upon interested organizations of the two countries, and representatives of
regions of India and Russia, to take an active part in the sixth India-Russia
Trade and Investments Forum, which will take place in New Delhi in 2012.
Once again, the Inter-Governmental Commission noted that the absence of adequate
logistics, infrastructure and facilitation procedures, are some of the major
obstacles for enhancing mutual trade. In this connection, both sides emphasized
the importance of dialogue on connectivity and agreed to finalize various
actions for implementation of the International North-South Transport Corridor
project. Russia welcomed India’s initiative to hold multilateral official
consultations on promoting this project in January 2012.
It was agreed to discuss setting up of a Joint Public Private Investment Fund to
promote the development of Russian investments and business activity in India
and vice versa by granting targeted credits to Russian and Indian companies for
developing business in the territories of India and Russia respectively on
favourable terms. Both nations noted the significant interest of the regions of
India and Russia to establish active mutual contacts for further development of
direct cooperation. It was recommended to promote regular exchange of
information on investment opportunities in regions of India and Russia. It was
agreed to establish a Working Group on modernization and industrial cooperation,
which would facilitate enhancement of mutually beneficial cooperation in the
field of Industry.
The Indian side conveyed that Indian companies such as ICVL, SAIL, RINL and NMDC
were keen to acquire mining leases of coking coal, thermal coal and iron ore
from Russia, and wanted to participate in the bidding process for developing
such unexplored mines. It was agreed to commence a dialogue on cooperation in
the field of manufacture of civil aircraft. Both sides also agreed to provide
necessary support to Russian and Indian companies in the realization of mutually
beneficial projects in the field of mineral fertilizer production.
Growth of Russian-Indian Trade
Trade and economic cooperation between Russia and India is developing
dynamically. Despite the negative impact of the global financial crisis, the
trade turnover between Russia and India reached $8.5 billion in 2010, which is
thrice as much as the turnover in 2005. It is important that the export-import
imbalance in favour of Russia is gradually smoothed out by a steady increase of
the Indian share in bilateral trade.The Federal Customs Service of Russia
reported a 14.4 percent increase in Russian-Indian trade in 2010 from the 2009
figure. Exports from Russia have reached $6.39 billion, which constituted an
increase of 7.7 percent; while imports from India were $2.14 billion, which was
a 40.5 percent increase.
Over the past five years, Indian exports of pharmaceuticals to Russia have more
than doubled. Indian tea, coffee, tobacco, spices, nuts, marine products, canned
vegetables (mostly gherkins) and fruits are in high demand in the Russian
market. India manufactures a wide range of competitive machinery and equipment
needed by Russia. The low volume of Russian imports of the above products in
previous years could be explained by a lack of information about Indian
producers. Now we can see a greater interest among Indian government
organizations, business associations and companies towards doing business in
Russia. Indian companies actively participate in conferences and exhibitions
organized in Russia. The number of Indian delegations visiting Russia is also
increasing. At the end of January this year, a big business delegation headed by
the Principal Secretary to the Indian Prime Minister Mr. T.K.A. Nair visited
Moscow. Mr. Nair was accompanied by the CEO’s of leading Indian IT and
pharmaceuticals companies. There were many high-level business meetings where
the ways of developing business were discussed.
The major event of the bilateral calendar was the official visit of the Prime
Minister of India, Dr. Manmohan Singh to Russia for the 12th Indo-Russian Annual
Summit between 15 & 17 December 2011. During the talks with the President of the
Russian Federation Mr. Dmitry Medvedev, both leaders appreciated the advancement
and further enhancement of the special and privileged strategic partnership
between India and Russia and noted that intense dialogue and regular high-level
meetings had contributed to the continued implementation of large-scale trade,
economic, investment, defence, scientific and technical projects, humanitarian
and cultural exchanges. Both sides decided to actively exchange business
missions in various fields of cooperation. They expressed satisfaction that
several successful joint projects in the hydrocarbon, steel, mining, automobile,
fertilizer and pharmaceutical sectors are currently being pursued. The sides
emphasized that cooperation in the energy sector had become one of the important
pillars of the India-Russia Strategic Partnership and reiterated their
commitment to further long term joint collaboration in the civilian nuclear
energy sector as well as in the hydrocarbon sector. The bilateral documents in
the economic sphere signed during the visit will undoubtedly contribute to the
enhancement of trade and investment relations between the countries.
The Trade Representation of Russia in India is focused on the development and
expansion of trade and economic relationship between Russia and India. It
provides Russian and Indian businessmen with required information enabling them
to establish direct contacts, encourages Russian and Indian enterprises to
explore new business opportunities, and ensures understanding between the
business communities of both countries. We are confident that Russia-India long
term partnership will grow stronger increasing its weight in the global economy,
while our trade and investment cooperation will show considerable expansion in
the near future.
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