Rouble rumblings

The spectacular collapse of the rouble presents India with both a crisis and an opportunity. The currency, which has dropped around 50 per cent against the dollar this year, has been weakening ever since the West imposed sanctions following the invasion of Ukraine and slid sharply after the recent slump in crude prices. The crisis part is clear enough. The rapidity with which the rouble has fallen means that export realisations will be hit. Those exporters with a significant exposure to the Russian market, particularly in the pharmaceutical sector, which accounts for nearly a quarter of India’s exports to Russia, have a special reason to worry.

The opportunity, though, needs to be actively seized. Indo-Russian trade has witnessed lacklustre growth with a two-way trade of just over $6 billion, a far cry from the $20 billion the two countries had hoped to achieve. Nevertheless, Russia had emerged as an attractive option for Indian exports after sanctions were imposed. This had forced India’s erstwhile Cold War ally to look eastward once again; it was no accident that Russian President Vladimir Putin’s recent visit to India saw as many as 20 trade deals being inked. India’s stance that it will not recognise any sanctions other than those imposed with UN approval has provided a welcome breather to Russia, and has gone some way to thaw the chill in ties after what Moscow saw as Delhi’s tilt towards the US in recent years. One way to take advantage of this, as well as turn Russia’s currency crisis to our advantage, could be to look at settling a larger part of bilateral trade in rupees. Unlike the earlier — and deeply flawed — rupee-rouble agreement, exporters have proposed a modified arrangement where banks accumulate claims against each other and settle them periodically in rupees. Another would be to speed up work on the proposed free trade agreement with Russia, for which the two countries have set up a joint study group.

Apart from allowing a slowing Indian economy access to a large and under-exploited market, this would also have strategic implications for India’s geo-political and geo-economic interests in the region. Russia has been pushing India to join its proposed Eurasian economic alliance. This would give India access to the large Central Asian and East European markets, apart from Russia itself. Since Russia is also a major oil and gas producer, this has long-term implications for India’s energy security interests as well. Given China’s renewed push for leverage in central Asia, with its ‘new silk road’ initiative, India has to move deftly to ensure that it remains an influential player in the region. Prime Minister Narendra Modi’s moves after assuming office have indicated that he is willing to pursue an independent foreign policy strategy without aligning outright with any bloc. Russia will be a test of that.

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