India's Exports To Russia Soar Amidst Sanctions Fears

New Delhi, May 27 (KNN) India has witnessed a remarkable surge in exports to Russia, driven by the ongoing conflict between Russia and Ukraine as well as the subsequent economic sanctions imposed on Moscow.

Figures indicate that the export of engineering goods, machinery, machine parts, and aircraft spares from India experienced a significant boost during the previous financial years.

However, this export boom has been accompanied by concerns and trepidation among Indian traders grappling with the potential risks of doing business with a sanctions-hit Russia.

While trade bodies report a tremendous appetite from Russian entities to import goods from India, the looming threat of potential sanctions and the reluctance of banks to facilitate such transactions have cast a pall over Indian exporters' enthusiasm to aggressively pursue opportunities in the Russian market.

Industry experts speculate that some exporters may be routing goods destined for Russia through the United Arab Emirates (UAE), which has significantly benefited from the tensions between Ukraine and Russia.

The latest trade data underscores the deepening economic ties between India and Russia, with the latter emerging as India's fourth-largest trading partner. Total bilateral trade is estimated at a staggering USD 65.7 billion. After China, India recorded its second-highest trade deficit with Russia, pegged at over USD 57 billion.

Notably, in the financial year 2023-24, India's exports to Russia surged by over 35 per cent to reach USD 4.3 billion, even as the country's cumulative goods exports declined by more than 3 per cent. Nearly half of this USD 1.2 billion increase in exports to Russia was attributed to the shipment of machines, machine parts, and electronics.

While recent discussions have centred around allowing Russian exporters to invest more freely in India using rupee-denominated payments, a mechanism facilitated by the Reserve Bank of India (RBI), Indian exporters remain hesitant due to concerns about potential banking complications and the associated risks of running afoul of sanctions.

Several trade missions have been organised to explore export opportunities in Russia, aiming to leverage the accumulated rupee balances. However, exporters argue that most Indian banks are reluctant to engage in such transactions, fearing potential repercussions from sanctions.

One large Indian exporter stated, "Most Indian banks don't want to take up this business, fearing possible sanctions." While Russian entities like Sberbank have expressed willingness to route funds through their Indian branches, domestic players prefer to avoid such transactions altogether.

According to another exporter who has halted all business with Russia for the past two years, "My advice to fellow exporters has been to route all exports through a small subsidiary so that the other parts of the business are not exposed to any sanctions."

Interestingly, a German buyer has been sourcing goods from this exporter and subsequently exporting them to Russia, highlighting the complex web of trade relationships emerging in the wake of the Ukraine conflict.

Sectors such as auto components had initially witnessed significant interest from Russia following the imposition of sanctions. However, the exposure of Indian companies to American buyers and global automotive giants has prompted them to exercise caution and refrain from engaging in business with Russia, underscoring the delicate balancing act Indian traders must navigate in the face of geopolitical tensions and economic sanctions.

(KNN Bureau)