Released on = January 24, 2007, 3:51 am

Press Release Author = DMA

Industry = Government

Press Release Summary = Relations between India and Russia have stood the test of
time. But, times change, and so do policies and priorities of nations. Even though
the defence-technical cooperation between the two countries has been growing at a
rapid pace, trade and economic ties are lagging woefully behind.

Press Release Body = Relations between India and Russia have stood the test of time.
But, times change, and so do policies and priorities of nations. Even though the
defence-technical cooperation between the two countries has been growing at a rapid
pace, trade and economic ties are lagging woefully behind, despite the plethora of
agreements initiated and the optimism exuded by their leadership. President Vladimir
Putin\'s Indian visit will indeed be a historic event if it helps remove certain
troublesome areas in bilateral relations, which now require a new basis in the light
of new realities and cannot be judged by the nostalgic Soviet-era standards.

Such areas of cooperation as energy security, engineering, metallurgy, information
and telecommunications, biotechnology, pharmaceuticals, joint space exploration and
major infrastructure projects are on the agenda. It remains to be seen whether
agreements will be clinched and a firm basis laid for development of relations in
all these areas, and much more, given the fact that both are rapidly expanding
economies with huge markets. Russia has overcome the trauma of the disintegration of
the former Soviet Union, which had reduced its economy to a basket case, and is now
prepared to do business with the world on entirely new terms.

It goes without saying that India must learn to come to terms with the New Russia,
which is now aflush with petro-dollars and is not in dire need of cash to exploit
its natural resources, as was the case a few years ago. Though India is now seen as
having succeeded in balancing its international relations and drawing closer to the
US after decades of estrangement, Russia does not feel worried. Moscow concedes that
the emerging Indo-US relationship, from which it too will stand to benefit
indirectly, is in conformity with the realities of globalization and India\'s dire
need of energy security and technology upgradation. It only wants to ensure that
competition should be fair and not come to the \"zero-sum game.\"

The phase of Soviet-era relationship having ended for ever, preferences or favours
are neither shown nor are expected. Strategic partnership between the two countries
certainly has a security-cum-political connotation, but its benefits do not extend
to the economic or nuclear domain which, in present-day Russia, is dictated by hard
market principles, or collective stand by the N-5. It is gradually sinking in to the
government and private entities in India that dealings with Russia are to be
governed by the same principles as apply to any other western market-oriented
country.

During his previous visit in December 2004, President Putin had envisioned rapidly
expanding cooperation with India. Prime Minister Manmohan Singh\'s Moscow visit in
Dec. 2005 noticeably encouraged large businesses to more actively seek mutually
beneficial contracts. Putin\'s visit to Bangalore, the software capital, showed there
are prospects for Russian-Indian cooperation in the IT field, which is presently
worth $30 billion in Russia and growing at 25 per cent annually. Bangalore is also
the headquarters of Hindustan Aeronautics Ltd, which has for long been cooperating
with many Russian entities. Russian businessmen, who accompanied Prime Minister
Mikhail Fradkov during his Indian visit in March, 2006, discussed substantive
proposals with their Indian counterparts and the newly-created Business Council for
Cooperation with India signed MoUs with CII, ASSOCHAM and FICCI. Russia shows
interest in developing military-technical cooperation, but the fact that trade in
mechanical equipment makes only 10 percent civilian cooperation cannot be viewed as
an achievement. It is, therefore, important to add to the list of products that
India exports to Russia, which has traditionally been dominated by food, textiles
and pharmaceuticals.

Total trade turnover last year was only $ 3 billion. Some of the reasons for this
unsatisfactory state of affairs, according to Russian Ambassador Vyacheslav
Trubnikov, are inefficient financial mechanisms in the banking sector,
administrative bottlenecks and deficient infrastructure, both physical and
organizational. While some steps were being taken to rectify the situation, much
more needs to be done to explore all possibilities of trade and economic
cooperation. Russia\'s early accession to the WTO was expected to facilitate better
and broader access of Indian goods to the Russian market. Moscow remains very keen
on expanding work in the nuclear field, but it is awaiting US legislation on the
subject and subsequent clearance from the Nuclear Suppliers Group, of which Russia
is also a member.

Trade remains the most troublesome area of Indo-Russian relations. The Joint
Research Group has only recently started its work and is entrusted with the task of
finalizing new economic agreements and increasing business volume. As in the past,
Russia\'s main Indian partners are companies that had evolved during the Soviet era,
ad whose thinking continues to be dominated by the traditional export basket. Today,
the business dialogue involves very few young innovative companies, cooperation with
whom could be of great interest for Russia, such as, those working in IT or
telecommunications, as well as, machinery ad equipment manufacturers. At the same
time, participation of Russian companies in Indian tenders and military-technical
cooperation that accompanies arms purchases and joint development of new weapons,
makes one feel optimistic.

The same applies to the future of energy cooperation. Oil imports from Russia will
account for 50 million tonnes out of the 200 million tonnes to be imported annually
by 2015. But, here too, no special consideration is being shown to India . For
monetary reasons, Russia prefers Chinese and Korean companies in the oil exploration
field and is no longer interested in production-sharing deals. That is why Rosneft
repaid in cash the $ 1.2 billion loan ONGC (VL) had extended to it as part pf the
deal to get India into Sakhalin-I, which has started producing oil. This has reduced
OVL\'s stake to only $ 1.5 billion and also its share of the oil extracted.
Nevertheless, India has invited Russian companies to participate in the downstream
energy sector, including a stake in the IOC\'s proposed $4 billion Paradeep refinery
and petro-chemical complex in Orissa. Discussions have also taken place between
the Russian energy giant Gazprom and ONGC on exploitation of Russian mineral
deposits. Another proposal is the controversial Iran-Pakistan-India oil pipeline
project.

Bilateral trade turnover at $3 billion last year remain modest, when Russia\'s trade
with China has already touched $30 billion and is growing. Though Moscow and New
Delhi have agreed to increase trade to $10 billion by the end of the decade, $5
billion is considered a realistic objective. Russia is a growing IT market and
Indian companies also can find export opportunities there. In the field of defence
technical cooperation, India continues to be a major buyer of Russian arms and
equipment for all the three services and even though the relationship is many
decades old, the problem of finding spares remains very acute till today. Mr. Putin
has now created Rosoboronservice India, a company which will address the Indian
Navy\'s concerns about poor availability of Russian-origin spares. A technical centre
or a spare parts storage facility needs to be set up in India to meet the needs of
the Indian Air Force.

The Russian Duma having recently ratified the Indo-Russian Space Cooperation
Agreement, the way has been cleared for joint exploration and transfer of space
technology to India. The accord would speed up collaboration in the Global
Navigation Satellite System (GLONASS) and GSP to allow both military and civilian
users around the globe to receive signals from satellites to identify their
positions in real time. ISRO will launch Russian navigational satellites, using
Indian space launch vehicles and develop jointly with Russia new generation
navigational satellites.

Russia is also eyeing the market for supply of 126 multi-role futuristic aircraft
proposed to be bought by the Indian Air Force. It has offered MIG 35 as replacement
for the MIG 29 of the IAF which need upgradation. The new aircraft carrier
Vikramaditya, which is being refitted in Russia to join service with the Indian Navy
next year, will also be equipped with MIG 29K/KUB ordered by the Navy. Talks have
also been going on for co-production of the fifth-generation fighter plane, with
Sukhoi and MIG Corporation having made proposals. President Putin and the Russian
Air Force, which will have to share the development costs, are required to come
forward with concrete proposals. The problem is that India cannot be the sole
purchaser of such an aircraft and also the sole investor in the project.

Projects in stealth and hypersonic technologies have also been identified. Russian
companies have a chance to establish a foothold in the Indian defence sector,
following the Government\'s decision to allow private participation in the
manufacture of defence equipment. Even though Mr. Putin intervened to allow India a
stake in Sakhalin-I on product-sharing basis, New Delhi cannot expect special
favours in future. At this juncture the entire gamut of bilateral relations needs to
be re-assessed and re-evaluated and a new dynamism injected into it.

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