Russia has stood firmly behind in times of crisis and the frequent wars with Pakistan, especially when the latter was a declared ally of the United States. Russia’s military might in those days equalled those of the US and this provided a much-needed back up to India’s face offs with the US ally in the backyard.

The Soviet Union on the other hand was a principal economic partner for India and large trade used to pass between the two countries. The trade used to be carried on in the currencies of the two trading partners, which obviated the need to transact and settle accounts in the US currency through the Central banks and government trading agencies of the two countries. In effect, it used to be a large-scale barter system in which only the net payable would have to be settled.

India was the larger importer between the two. Russia was a major supplier of defence goods and equipment to India that were of high value. India also imported capital goods and machinery from Russia for many of its large projects, like the two steel plants in Bokaro and Bhilai, or the super heavy machinery manufacturing plant in Ranchi. Soviet Union used to import tea, leather items, textiles, pharmaceuticals, electrical goods and other consumer products from India.

After the collapse of the Soviet Union, as new Russia took a re-look at its relations and the country started moving towards Western Europe in its choice of consumer goods, India trade retreated fast. Russia’s taste for western brands and products meant costlier items, though. However, Russia was bailed out by its large reserves of natural resources, mainly, energy sources, which fetched huge premiums in the days of Great Moderation, when the global economy was having a dream run of growth and cheap money.

On its part, as India launched its economic reforms programme and growth rate started rising, the country diversified its trade and preferences. As with Russia, India developed linkages with western economies on a sounder footing and Russian exports were put on the backburner.

There were of course solid reasons for the diversion. While Russia had opened up, it had not bothered to nurture and develop its commercial infrastructure backbone. While western companies could work their ways through, Indian companies could hardly tackle the complexities of Russian banking facilities. Letters of credit were not available, as a result, even after sending their goods, Indian exporters would hardly get paid. One exporter told this correspondent that that what could be earned from a deal with Russia, could be earned with much less effort and energy from domestic business of a smaller volume. So why bother to export to Russia?

Notwithstanding the mutual disinterest, the two countries had proposed to enter into a free trade agreement. A joint study group was also formed and the group had had several rounds of meetings in Delhi and Moscow. However, not much progress appears to have been made in putting such a preferential bilateral trade treaty into place.

There was a time when India’s economic relations with the Soviet Union would be the so-called talk of the town. Soviet Union used to have elaborate trade offices in Indian metropolises, which would be far bigger than the full embassies of many big countries. No less than 10 percent of overall exports and about that amount of imports would be carried between the two countries, apart from huge unstated defence purchases from the Soviets.

If one aspect of India’s external trade has changed beyond recognition it is Indo-Russian trade and economic exchange. India had commanding economic and trade with Soviet Union; but has at best a nodding economic links with Russia.

Today, India’s exports to Russia account for just over half a percent of its overall exports and imports are just around 1 percent of global imports. The shrinkage in importance of commercial transactions has come about in times when external trade of India has increased as never before and Russian imports have increased phenomenally.

Following the conclusion of an agreement, which followed the rupee-rouble trade arrangement, India had substantial amounts of obligations to Russia. These were to be liquidated under the terms of the agreement by India placing the dues to Russia in an escrow account with the Reserve Bank of India, from which funds would be released against imports by Russia. But such was the apathy of Russian purchasers, that even the escrow amounts could hardly be exhausted annually.

This is because with the fall of the Soviet Union, as Russia opened up to the West, the preferences were for western products against earlier supplies provided by the state owned trading outfits. Private sector western companies made fast inroads in Russia and they captured the market. In the first flush of opening up, Russians savoured the western products, which they were denied ever since the Soviet revolution.(IPA Service)