Indian economy is globally known for its outsourced software engineering. Indian Code has even become a generic term for low quality, crappy or buggy computer code. Meanwhile Russian investments in the country go to more fundamental industries. At the latest BRICS summit held in South Africa in late July, broader bilateral cooperation was also discussed. Earlier, a meeting on economic matters between Head of Ingushetia Yunus-Bek Yevkurov and an Indian delegation took place.
Russia’s main investments in Indian economy are focused on two sectors: energy resources extraction and processing, and transportation. Both sectors have a strategic importance for Russia’s presence in India and in South Asia in general.
Even though Russia is not leading in direct foreign investments in India, the largest ever direct foreign investment in the country throughout India’s entire history was a $12.9 bln worth acquisition of Essar Oil by Rosneft last year. More so, the deal is the largest foreign investment in Russian history as well. Essar Oil’s main asset is an oil refinery with an annual output of 20 million tons, the second largest in India. As supplements to the deal, Rosneft also got a marine terminal, a power station, and a chain of fuel stations. The facility was launched not long ago and meets all present-day requirements in the oil industry. Nelson complexity index used for quantifying and ranking the complexity of various refineries and units, equals 11.8 for the refinery which primarily deals with refining heavy and ultraheavy oil. The situation is complicated though by the company’s indebtedness. Rosneft purchased a 49% share in the company. Yet according to some sources, Trafigura which is part of a consortium holding another 49% share, is also controlled by Rosneft. To buy the stocks, Trafigura supposedly got a loan from Russia’s VTB Group. According to some Indian sources, Trafigura has an agreement with Rosneft on assigning its share to the Russian company in the future. The deal was presumably structured in such a way in order to avoid international sanctions.
The other energy megaproject is Kudankulam Nuclear Power Plant. India has been cooperating in nuclear power generation with Russia (and previously USSR) for many decades. India’s nuclear program was developed with the Soviet Union’s direct involvement. The first nuclear reactor at Kudankulam plant was launched in 2013, whereas the project inception dates back to the USSR and an initial agreement on constructing it was signed in 1988. The contract works are performed by Russian entities. As for investments, the fact is questionable. Even before anti-Russian sanctions were imposed, financing had been and still is provided through a government credit. Under the USSR that was a customary format for funding giant projects such as Aswan High Dam in Egypt. That does not diminish the strategic significance of the past projects, though. In July, Tyazhmash company already started producing machinery for reactors three and four of the nuclear power plant which are expected to be launched shortly.
Transportation projects have an even greater strategic significance. In early 2017 Russia’s RailTransHolding and India’s Jindal Limited made investments in Jindal Rail Infrastructure Limited for producing rail carriages and rail tanks, as well as mining equipment in India. The deal was structured by Russian Export Agency (EXIAR). It should be noted that prior to the deal Jindal Rail Infrastructure Limited was not a joint stock company, and has existed since 2007, i.e. long before Russians started investing in it. Jindal Limited is one of the leaders of metal industry in India and globally too. The purpose of the deal is ensuring the company’s haulage.
Another Russian government transportation company which broke into the Indian market is Russian Railroads (RZD). In a year, RZD International intends to complete constructing Nagpur to Secunderabad rail road. An agreement on joint activities by RZD and Indian Railways was signed on June 1, 2017 during the Indian Prime-Minister Narendra Damodardas Modi’s visit to Russia. It is expected to have 575 kilometers long section modernized. After the upgrading the speed of the trains will reach 200 kilometers per hour.
Russian investments in Indian economy are certainly not limited to the above major projects. Besides, there were some investments by Russia’s Financial Corporation Sistema. Those apparently were unsuccessful since Sistema left the Indian telecom project. Yet not long ago it invested in an Indian food delivery service.
The above major projects indicate though that Russia’s main interest in India is creating the International North-South Transport Corridor. What shall it be used for? For transporting oil products. It was not for nothing that Rosneft invested a great deal of money in oil refining. India has very little oil of its own which will not suffice to support developing national economy. So Russia offers it oil from Russia and, according to some sources, from Venezuela. It is only required to get a short way to transport it.
As for the nuclear power station, India has world’s largest uranium deposits. The problem is, those are possible deposits that are not properly explored, and so now the country lacks nuclear fuel. Hence at the moment the main purpose of the International North-South Transport Corridor is meeting the needs of the local energy sector which fails to satisfy the demands of the booming national economy.
Iranrood project has been explored for some time. In fact, North-South Transport Corridor is a twin to the Iranhood idea, yet with a better developed inland infrastructure and more realistic prospects. It generally involves the very same countries, namely Russia, India and Iran and, by implication, Azerbaijan and Kazakhstan.
The International North-South Transport Corridor’s geopolitical significance is vast. These days cargoes from Russia are transported to India via Suez Channel. If compared to the North-South Corridor, that is a long way. Once the Corridor is launched, cargoes from Russia to India will be transported within two weeks. That will increase the geopolitical roles of Russia, Iran, Azerbaijan, and India and reduce the effect of the sanctions against Iran and Russia. India will also get certain advantages against its geopolitical challenger, China. The main loser will be the UK as it controls deliveries via Suez Channel – by means of its insurance services.
As for India, its rivalry with China has a part to play in the establishment of the transportation corridor. Experts forecast that India will soon become world’s number two by the national GDP volume immediately following the US and having pushed China to the third position. According to the forecasts of Iranian media, India’s 2018 GDP growth will reach 7.5% against 6.3% in China. Thus, the economic pillars for the global shift are already in place. Once the transportation along the International North-South Transport Corridor commences, investors will immediately start converting their Chinese assets into Indian ones.
By Roman Mamchits