Turn to the East: How Russia’s approach to foreign trade has evolved in the last two years

Russia has been actively restructuring its economy over the last two years, focusing on import substitution and looking for new partnerships with suppliers of equipment, raw materials, and technology. This shift presents Indian companies in various industries with a promising new market to discover.

Economic growth in challenging circumstances

In early 2022, Russia faced unprecedented pressures and economic challenges. In spite of this, the country avoided crisis and instead embarked on a programme of economic growth by stimulating government spending and promoting tight fiscal policy.

Since 2023, key macroeconomic indicators—spending, budget deficit, inflation, and unemployment—have been kept under government control. In 2023, Russia’s GDP grew by 3.5%, surpassing most analysts’ expectations. The business confidence index is almost at an all-time high. The Russian government forecasts that consumer demand will grow by 7.7% in 2024 compared to 2023, when demand also increased by 6.4% over 2022.

In its regular update on Russia’s economic outlook, the Central Bank of Russia notes production growth in the following industries:

• automotive
• furniture and household goods
• household appliances
• machine building

In addition, the software sector has come to life. When Western suppliers exited the Russian market, domestic IT companies set about filling the available niches, primarily in cybersecurity and cloud services.

Exports and imports: cross-commodity growth

The resetting of economic relations has changed the way Russia approaches international trade. The refusal by some countries to do business has made it necessary to seek out new markets for Russian products and new suppliers.

These changes have affected the dynamics in various export and import categories. A closer analysis suggests a number of promising areas for Russian-Indian cooperation.

Currently among Russia’s growing exports are:

• crude oil and petroleum products, including (increasingly) to India
• mineral fertilisers
• cereals
• iron ore, steel, and processed metals

Russia has largely retained its previous export structure, and any changes mainly concern new markets.

Most promising categories for Russian exports to India

Source: ITC Export Potential Map, 2023 

Growing import categories in Russia include:

• aviation
• machine building (machinery and equipment)
• pharmaceuticals
• food products
• household appliances
• consumer goods

There are excellent opportunities here for Indian businesses to make the most of India’s long-standing positive reputation in Russia’s B2C sector. Indian products—especially tea, coffee, and clothing—are well-regarded in Russia. Notably, one of Russia’s leading premium segment retailers has launched a dedicated department for Indian cosmetics, food, incense, and other items.

An open market

Since February 2022, about a thousand foreign companies have withdrawn from the Russian market, impacting almost all sectors. Some owners sold their assets to local management before exiting, thus leaving behind operating businesses. Despite being under new ownership, these companies have either retained their former names, like the stores formerly belonging to German retailer Obi, or changed them to something similar, as in the example of Starbucks, now Stars Coffee.

However, many companies left without transferring their assets, or simply stopped providing services altogether, as in the case of oilfield service companies. Thus, in once busy, highly competitive markets, space has opened up for new players.

For Indian companies, the most promising areas are those where they already have a presence, an established reputation, and a good understanding of the market. “The prospects for Indian goods on the Russian market look good, particularly where high-quality and inexpensive foodstuffs, light goods, and household chemicals are concerned,” says Alexander Zubarev, founder of Elements Group.

“India has long prioritised the local production of goods, from household appliances and cars to industrial equipment, chemicals, pharmaceuticals, and more,” says Lydia Kulik, Head of India Studies at the SKOLKOVO Institute for Emerging Market Studies. “Today, this list is being expanded to include electronics and microelectronics, medical equipment, solar panels, wind turbines, and various consumer goods and their components (textiles and leather, for example). Progress in these areas has been significant.” Products from India are cheaper than their Western counterparts (though less familiar to Russian customers). At the same time, they are more expensive, but of higher quality, than products from China. A good example of this can be found in the medical equipment sector.”

Most promising categories for Russian exports to India

 Source: ITC Export Potential Map, 2023

India to Russia import outlook: five-fold growth in seven years

At present, Russia-India trade is hampered mainly by expensive logistics. The delivery of goods by sea and air is not always economically viable, and the North-South transport corridor, which connects Russia and India via Iran, is not yet fully operational. However, despite these challenges, the outlook remains positive.

In 2021, the trade turnover between Russia and India did not exceed $15 billion. In 2022, it amounted to $35 billion, and reached $64 billion in 2023, says Vera Pronkina, President of the Russian-Asian Business Council.

“This sharp increase was due to the growth in Russian exports, while Indian imports to Russia remained fairly low. In 2022, these were worth about $2.5 billion. However, in 2023 this situation began to change. As Indian suppliers explored the Russian market, imports from India started to grow. In total, 2023 saw $4 billion-worth of Indian products imported to Russia.” And Pronkina believes this trend will continue in 2024. According to a study by the Council, imports from India to Russia could rise to $20 billion by 2030.