Recent reports have revealed a surprising secret trade deal between India and Russia that could shake up international relations, especially with the ongoing conflict in Ukraine. Leaked documents show that Russia has been quietly obtaining sensitive electronics from India to support its military efforts, all while trying to dodge Western sanctions.
In July, India, the world's third-largest oil consumer, purchased ₹23,504 crore ($2.8 billion) worth of discounted Russian crude oil, making Russia India's top supplier, second only to China globally. Previously, Russian oil made up less than 1% of India's imports but now accounts for nearly 40%. India, which relies on imports for over 85% of its oil needs, spent ₹95,696 crore ($11.4 billion) in July on 19.4 million tonnes of crude. The discount on Russian Urals crude widened to $16.76 per barrel, while other blends saw modest discounts.
The Secret Trade Scheme
By mid-2022, Russia was collecting up to $1 billion in rupees each month but had no way to convert or spend the currency. So, Russia's Ministry of Industry and Trade allegedly planned to spend about 82 billion rupees (around $1 billion) to buy critical electronics from India through hidden channels. According to the Financial Times, the project was disclosed in letters sent to a shadowy trade group that has ties to Moscow's secret services.
The Consortium for Foreign Economic Activity and International Interstate Cooperation in Industry was tasked with creating a plan to source these electronic components from India.
The Consortium's plan provided a potential solution to get rid of this growing trade imbalance & pile of Rupees: using rupees to obtain dual-use components through a "closed payment system" between Russian and Indian companies. This would allow a consistent flow of electronic equipment originally sourced from Western markets, according to leaked letters.
Plus, the plan suggested investing in Indian electronic factories to support Russia's information infrastructure needs. The leaked documents reveal that India has been supplying sensitive goods, including dual-use technologies - items with both civilian and military applications - to Russia.
This includes components for telecommunications and electronic warfare systems, which are closely monitored & controlled by the Western countries. Notably, an Indian company, Innovio Ventures, has reportedly supplied at least $4.9 million worth of electronic equipment, including drones, to Russia.
The Plan Seems To Be Working Well
While it's unclear how much of this plan has been implemented, customs data cited by the Financial Times aligns with the operation's objectives, shows a significant increase in trade involving electronics and machinery since mid-2022.
An Indian businessman with knowledge of the situation also confirmed that Russia has explored setting up facilities in India. As the conflict in Ukraine continues into its third year, securing access to electronic components remains a priority for the Kremlin.
Exports during the financial year 2020-21 and 2023-24 grew by 59% during the financial year 2020-21 and 2023-24, while imports surged by about 8,300 per cent the trade deficit rose from USD 2.8 billion before the war in 2020-21 to USD 57.2 billion at present.
India’s Relations With The West At Stake
This report comes at a delicate time for India, especially after Prime Minister Narendra Modi's recent visit to Ukraine, which many viewed as an effort to strengthen ties with Western nations. New Delhi’s longstanding ties with Moscow have often strained relations with Washington, and the Ukraine war has heightened tensions further.
In July, U.S. Deputy Treasury Secretary Wally Adeyemo warned Indian banks against engaging with Russia’s military-industrial area, warning that doing so could jeopardize their access to the U.S. financial system. Regardless, India continues to export a variety of goods to Russia, including smartphones, shrimp, medicines, meat, tiles, coffee, aircraft parts, chemicals, computers, and fruits.
India’s competitive edge in these products presents an opportunity to increase exports to Russia. However, a product-level strategy is needed to boost trade.
Regarding local currency trade, the report noted that settling transactions in Rupees remains challenging due to the Indian Rupee's limited global use and Russia's reluctance to hold large amounts of it.
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