Time for India to step on business with Russia

Ukraine revolution in February this year resulted in big geo political crisis as Russia annexed Crimea and subsequently sanctions were imposed on Russia by EU, USA, and their allies. Russia retaliated by imposing counter sanctions on EU, USA and their allies by banning import of food, dairy and agricultural products, etc. from these countries. The sanctions by EU have presented a fantastic opportunity for Indian businesses to enter Russian market and establish a permanent presence. Europe is the major trading partner with Russia doing business worth Euro 360bn(EU exports automobiles and transport equipment, machinery, chemicals, medicines and agricultural products while mainly imports oil & gas) and major FDI(Foreign Direct Investment) in Russia comes from EU which is about Euro150bn. India’s trade with Russia is less than 1% of its total trade which is a shame considering India’s historic friendship and relationship with Russia (India’s exports only about US$2.1bn considering trade in non-defence sector). India’s trade with most of the matured economies of USA, EU has reached maturity stage and I don’t see much growth with these countries and so India should also look to expand its trade beyond traditional markets of USA and EU.

The reasons for this dismal trade figures are many like freight disadvantage compared to Europe, difficulty in adherence to strict quality standards and difficult business environment (but this can’t be an excuse since European companies are successfully established and entrenched in Russian market in almost all sectors). Also it is not true when we say that Indian companies only work with angels in the ideal business environment as they are present in many of so called “Ideal” countries in Latin America and Africa ;). As per the latest World Bank ranking, India is one the most difficult places to do business and not heaven to say the least as India ranks a lowly 142 as far as “Ease of doing business” is concerned as compared to much higher rank of 62 for Russia. My experience is that Indian presence in Russia is limited to pharma sector and most of Indians living in Russia or trading with Russia are into small time trade like jewellery, tea, coffee, textiles, etc. with no presence of big Indian companies and brands. This is because Indian companies focused more on USA, Europe, Africa, etc. because of relative ease of doing business and other intangible reasons and perceptions.

Russia on its part also ignored India’s growth and transformation in last decade and became closer to Europe and this gave European companies a big foothold in Russia be it departmental stores, retail brands, automobiles, luxury goods, engineering and construction and so became its closest trading partner. In the areas where European companies were facing government hurdles they got around it by setting up companies in CIS countries like Ukraine, Georgia, etc. and started exporting goods from there to Russia. The biggest advantage of such arrangement was that Russia charges no import duty for goods from CIS whereas for imports from non CIS countries attract minimum 5% duty. So everybody found an easy solution to do business with Russia by setting up shops in CIS and everything was going fine till this Ukraine revolution and subsequent events happened. Now all such arrangements will come to null as Europe and Ukraine has lost Russian market for a long time to come as Russia is definitely going to impose import duty and other non-tariff trade barriers on goods from Ukraine, Georgia (whichever country is in process of joining EU).