Agri, Pharma Can Emerge as Key Areas of India's Cooperation With Russia Amid US Sanctions: Experts

Several multi-national companies, primarily of US-origin, have withdrawn their investments and exposure from the Russian market following sanctions imposed by Washington and European nations. West targets the Russian economy after President Vladimir Putin ordered special operation in Ukraine at the request of the people's republics of Donbass.

Indian experts believe an all-new geopolitical system underpinned by national interests will emerge to provide business opportunities in Russia amid western-fuelled disruption in the global economy amid the Ukrainian crisis.

Most Asian countries abstained from voting against Russia at the United Nations Security Council, indicating they will unlikely to follow unilateral sanctions imposed by the west on Russia. The new system will also provide immunity to those who decide to continue trade with Russia, experts say.

They have made assessment days after US-based rating agencies downgraded the sovereign rating of Russia, a $1.7 trillion economy that is the world's sixth-largest in terms of purchasing power parity.

"This event [Ukraine crisis] has become crucial for the growth and development of the world economy. Now all the dynamics of the geopolitical system will be different from the earlier," Pradeep Multani, chairman of Multani Pharmaceutical Ltd and President of PHD Chamber of Commerce, told Sputnik.

Multani hopes that experience gained during the COVID-19 pandemic since 2020 would be utilized by Indian firms while making their investment decisions keeping in mind the futuristic goal of the company.

Pharma and Agri Sectors

Russia offers tremendous promise to pharmaceutical industries: in 2021 only the country imports pharmaceuticals worth over $14.7 billion, and European and US manufacturers fulfilled most of these requirements.

Experts think that Western supplies of medicines and equipment to Russia may be disrupted over decisions to cut-off seven Russian banks from the SWIFT payment system and suspension of shipping services, thus providing opportunities for the Indian firms such as Sun Pharma to expand their businesses. Sun Pharma has a presence across 50 cities in Russia.

"India's exports to Russia right now are not in a high trajectory. So, I think exports related to pharma, food processing, which are also in need in the Russian economy, would continue. Once value chains strengthen, Indian firms will capture more and more available opportunities in the global market arena, including Russia," Multani underlined.

India's pharmaceutical export to Russia stood at $591 million in 2021. As sanctions imposed by western countries do not apply to medicine and medical equipment, Indian firms would likely be significant beneficiaries of Russia's highly expanding pharmaceutical market.

Multani's emphasis on strengthening value chains holds high importance as India's pharma sector is heavily dependent on Beijing for raw materials, which is disrupted due to COVID-19 induced closure of several factories in China.

Experts believe the early channelization of a sanction-proof payment system with Moscow would boost India's chances of capturing the west's rival share and investment in Russia.

"The unprecedented sanctions on Russia will not have a direct devastating effect on the agro and pharmaceutical industry, which can emerge as key areas in which India can step up its cooperation with Russia," Aditya Pareek, a research analyst at the Takshashila Institution, a Bengaluru-based independent think-tank and public-policy school told Sputnik.

India can also seek to invest in the agriculture sector of the Russian Far East, especially the fisheries industry in the Sakhalin Oblast.

"A new set of tax breaks and customs-free zone will soon be implemented on the Kuril Islands territory of Russia and it might be a gesture of confidence in Russia that can net India exclusive diplomatic and financial dividends in a mutually beneficial way," Pareek added.

Energy Sector

Besides pharma, Russia's oil and gas sector also provides immense opportunities of investment in Russian energy sources for Indian firms at discounted rates, given the departure of US and European firms from Rosneft, Gazprom, Lukoil, and Surgutneftegas.

"It may be possible for some of the government owned companies to invest in Russian natural resources. India will remain dependent upon imported commodities and blocking out a key global supplier will not help us. However, this can happen only after the situation between Russia and Ukraine has normalized," Amit Bhandari, Senior Fellow at Mumbai-based the Gateway House, says.

India's public sector firms have stakes in several oil and gas blocks owned by Rosneft and Gazprom. Public sector unit GAIL has a 20-year contract with Gazprom to receive 2.5 million tonnes of LNG a year. Higher crude prices will also boost the profitability of ONGC and Indian oil, which have adequate Russian market exposure.

There are some concerns related to transactions of the income due to sanctions but expert suggested ways to continue the trade and payments.

"Although many measures are being considered by India for bypassing payments facilitated by SWIFT, India and Russia can in the meantime rely on commodity exchange for the payment of dividends just like ONGC Videsh is mulling. ONGC Videsh is a consortium member in Russia's Sakhalin I pipeline and has invested in several hydrocarbon blocks in the Russian Far East," Pareek adds.

Financial Services

An unexpected beneficiary of the financial sanctions would likely be GIC Perestrakhovanie LLC—a 100 percent owned subsidiary of India's state-owned reinsurance company GIC. UK-based consultancy firm Peel Hunt LLP estimates the insurance industry's political risk exposure in Ukraine and Russia at $2 billion.

Suppose western firms avoid providing insurance to Russia-linked businesses; in that case, GIC may see an expansion of its business as it only has market exposure limited to Russia and Central Asia.

Space has also been created for India's unified payment system and RuPay card after Mastercard, Visa, and other financial services companies, including PayPal and American Express, have distanced themselves from Russia.

During the 21st annual summit held last December in New Delhi, India and Russia expressed interest in continuing dialogue on accepting RuPay and MIR Cards within national payment infrastructures, as well as on the interaction of Unified Payments Interface (UPI) and the Faster Payments System of the Bank of Russia (FPS).

"The Russian Side invited Indian credit institutions to connect to the financial messaging system of the Bank of Russia to facilitate faultless interbank transactions," the joint statement issued after the summit read.

India's bilateral trade with Russia is around $10 billion annually. India purchases petroleum products, diamonds and other precious stones, and fertilizers from Russia. India's exports constitute of pharmaceutical, organic chemicals, electronics, and auto parts products.

Government sources in New Delhi said that two countries are involved in discussions to restart the dormant exchange mechanism to facilitate Rupee-Ruble trade. Exporters expect an early decision on the Rupee-Ruble trade as western sanctions made dollar transactions difficult.