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BRICS countries need to strengthen transport connectivity to grow trade

Published: June 7, 2024
Author: TEXTILE VALUE CHAIN
Speech delivered at the plenary session of St. Petersburg International Economic Forum 2024 (SPIEF’24) 5-8 June 2024, St. Petersburg, Russian Federation.

Dr. Vijay Kalantri,
Chairman – Russia India Trade House Mumbai (RITHM)
President – All India Association of Industries (AIAI)
Chairman – MVIRDC World Trade Centre Mumbai
Director – World Trade Centre Association Ney York

India, Russia and other BRICS member countries may collaborate to strengthen logistics and transport connectivity to reduce cost and time consumed in cross-border trade, suggests Dr. Vijay Kalantri, Chairman – Russia India Trade House Mumbai (RITHM), President – All India Association of Industries (AIAI) Chairman – MVIRDC World Trade Centre Mumbai Director – World Trade Centre Association Ney York.

“India, Iran and Russia may collaborate to strengthen multi-modal transport connectivity along the International North South Transport Corridor (INSTC); This corridor passes through Iran and Central Asia and it is 30% cheaper and 40% shorter than Suez Canal route. Especially, we need to expedite construction of the 164-km railway line between Rasht and Astara via Anzali. Also, the member countries need to collaborate to complete the 628-km-long railway line to connect Chabahar Port with the Iranian railway system (Zahedan railway line). These projects will strengthen the International North-South Transport Corridor (INSTC) and reduce logistics time and freight cost for trading among India, Iran and Central Asian countries,” suggested Dr. Kalantri at an interview to a Russian media agency.

Dr. Kalantri also proposed various measures to foster strong business ties between India, Russia and other BRICS countries.

Business Opportunities in BRICS

In January 2024, 5 countries have joined BRICS; These are: Egypt, Ethiopia, Iran, Saudi Arabia and UAE. Other than Saudi and UAE, none of these countries rank as the top 25 trade partners of India. Their entry into BRICS forum holds tremendous business opportunities for Indian MSMEs, Dr. Kalantri pointed out.

He further added, “For instance, India has USD 1 billion untapped export potential to Egypt in sectors such as pharma, agro-chemicals, autocomponents, wheat. India also has USD 2.7 billion untapped export potential to Ethiopia in sectors such as agriculture, iron ore and pharma. With Iran, India has untapped export potential of USD 1.6 billion in agro products (bovine meat, tea, maize, wheat, sugar), pharma and automobiles and auto components.”

Thrust Areas of Cooperation

Dr. Kalantri mentioned, “BRICS forum should cooperate in energy security, artificial intelligence, cyber security, blockchain and other cutting-edge technologies. India can export its fintech technologies and solutions to BRICS countries for financial inclusion. Also, BRICS countries should deploy e-commerce platform for MSMEs to trade digitally without much barrier. We should also promote trade settlement in local currency among BRICS countries.”

He said, “This is called the Century of India; India is emerging as hub of global supply chain; Many foreign companies are re-locating manufacturing to India. Russian companies can consider India as a promising manufacturing destination.”

Following is the excerpt of his views and suggestions shared at the interview:

Russia has emerged as the cheapest supplier of crude oil to India; This will enhance global competitiveness of Indian industry as in the past, we were relying on costlier crude oil cargo from middle east and Latin America.

Automobile and auto-component is a focus sector for promoting local manufacturing under Production Linked Incentive Scheme; So, Russian companies can consider investment in this sector. Especially, in recent months, India rolled out electric vehicle policy, under which the government reduced import duty for certain range of electric vehicles for foreign companies if they agree to invest in India in the forthcoming years.

Indian government is encouraging foreign investment in solar modules, specialty steel, air conditioners, electronic goods, technical textile, pharmaceuticals, Active pharma ingredients, medical devices, advanced chemistry cell batteries, drones and other sectors. Indian government is improving ease of doing business for foreign and domestic companies. The government has removed 39,000 “unnecessary compliances” and revoked 1,500 laws in the last 10 years, besides simplifying regulation, rolling out tax reforms and de-criminalising minor offences.

India has negative trade balance largely due to huge import bill from crude oil, gold, electronics, edible oil and fertilizers. Russia can supply these goods at a discounted rate and help India reduce this import bill.

Indian industry is increasingly adopting green practices such as renewable energy, energy efficient machineries, low carbon production technologies, sustainable waste discharge and management; In future, we may see adoption of green hydrogen, electric vehicle on a mass scale by Indian industry.

Indian industry is contributing to the GDP growth by increasing investment and manufacturing in 14 sectors where government announced Production Linked Incentive Scheme; Also, our services sectors such as IT, hotel, real estate, construction, tourism, hospitality, business and professional services are contributing to GDP growth .

In the aftermath of the pandemic, Indian manufacturing and services sectors are benefiting from increase in foreign direct investment; India received the highest ever foreign direct investment of USD 83.57 billion in 2021-22, although it declined to USD 71 billion in the subsequent year due to global economic slowdown and geopolitical tensions. India received 3rd highest Foreign direct investment in 2022 as per UNCTAD report.

India-Russia Cooperation

This is the most opportune time to strengthen India-Russia partnership. Russia became 4th largest trade partner of India from 20th 2 years ago. Bilateral trade has already crossed USD 50 billion and I am sure it will double to USD 100 billion in 2-3 years. Russian companies can invest in India by using surplus rupee accumulated under the Rupee-Rouble trade mechanism.

Energy security

Russia can be a strategic partner to meet India’s energy and mineral security. Already, Russia’s cheap crude oil supplies helped India reduce oil import bill. Today, India sources 35% of crude oil from Russia (vs. 23% last year).

Chamber of Commerce and Industry (CCI)

I am happy to note that Russia’s largest trade body, the Chamber of Commerce and Industry (CCI) has opened 2nd office in India in Mumbai recently. Generally, CCI does not open more than one office in any country. Its opening of 2nd office goes to prove the importance of India in Russia’s foreign policy. CCI, being Russia’s largest trade body representing 53,000 business organisations, can play a major role in driving bilateral trade. Russia can be a potential investor in India’s smart cities and upcoming industrial zones. Already, some Russian companies have invested in the Aurangabad smart city – AURIC.

India’s ongoing FTA negotiation with Eurasian Economic Union can further strengthen our two-way trade. Eurasian Economic Union includes Russia, Belarus, Kazakhstan, Kyrgyztan and Armenia. WTC Mumbai and AIAI assures all support to Russian companies to facilitate their trade and investment in India. For the last 7 years, we have been promoting bilateral trade and investment through the India-Russia Trade House

Trade Deficit

India runs USD 47 billion trade deficit with Russia and this needs to be corrected through trade facilitation initiatives. We need to initially focus on a few sectors to develop trade, investment and technology cooperation. India is 5th largest economy and Russia is 8th largest economy. Together, we can strengthen each other’s economy.

Lopsided trade

But bilateral trade is lopsided as it is dominated by oil and fertilizers. We need to diversify our trade basket beyond crude oil and fertilizers.

Sectoral opportunities

India has USD 21 billion untapped export potential to Russia. Of these, USD 4.6 billion is in textiles, USD 3.4 billion in electronics and electrical machinery, USD 2.5 billion in metal products, USD 2.4 billion in food & agro products, USD 2.2 billion in chemicals. Export potential also exist in automobiles, pharma, medical devices and polished diamonds.

Raw material security

Russia can meet India’s raw material security by supplying copper, nickel, palladium, fertilizers

Rupee-Rouble Trade

Major barrier for Rupee-Rouble Trade is the high trade deficit. More and more Russian banks should facilitate Rupee-Rouble trade settlement. Russian exporters can invest surplus rupees in Indian bonds, equities and infrastructure sector.

Priority sourcing list

Recently, Indian Embassy in Moscow shared priority sourcing list with Indian exporters. These priority sourcing items include food and pharmaceutical products, which are outside the sanction list of western nations. Particularly, Russia is keen to import onion, grapes, bananas, spices, dried fruits, vegetables; The list also includes home textiles, kitchen towels, blankets, cosmetics, bath towels etc.

Mutual agreement on Quality Certification is pending

Indian exporters are facing quality certification/registration issues in pharmaceuticals, seafood, buffalo meat, mangoes, pineapple, avocadoes etc. Both countries should finalise negotiation to accept each other’s certification in agro and animal products.

Sign FTA

Both countries should conclude FTA negotiation. Russia is India’s gateway to 10-country CIS region, with 250 million consumer market

Northern Sea Route (NSR)

Amidst Red Sea crisis, we can also promote Chennai – Vladivostok shipping route. Already, 35% of cargo traffic in this route is bound for India. But there are challenges in using this route due to freezing of sea

The Way forward

To promote bilateral trade, export Insurance agencies such as ECGC should provide risk cover for Indian exporters to Russia. Currently, risk insurance for trade with Russia is restricted due to sanctions. Banks of both countries should integrate their payment networks to accept trade settlement in UPI and other digital payments. Russia can share its expertise in infrastructure, road, railway & airport development with India.

Russian Far East

Energy security is another potential area: Indian oil and gas companies can invest in exploration in Russian Far East. Russia can declare dedicated industrial zones for Indian investments and provide tax and non-tax incentives to Indian companies. Russia can give incentives for Indian investment in special economic zones.

Emerging areas

Both countries can also partner in clean energy, green hydrogen, cyber security and electric vehicles. Russia and India can launch start-up accelerator program for collaboration in blockchain, artificial intelligence and other emerging areas.

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