Russian private businesses have continually struggled to gain a foothold in India. Apart from the defense sector, few Russian private or public-private partnership companies, regardless of their size and global ranking, have managed to penetrate and sustain their operations in the Indian market. The big question is why this is the case and how to overcome these challenges in the present times?
Prime Minister Modi's visit to Russia in July, followed by his recent attendance at the BRICS Summit 2024, has sent a clear message that India is committed to strengthening trade ties with both the Russian government and Russian private companies. During the BRICS Summit, Modi has reaffirmed India's support for peaceful conflict resolution and expressed readiness to assist in achieving stability in Ukraine. His engagement further consolidated strategic ties within BRICS, especially through initiatives like the expanded investment platform and new membership, positioning BRICS as a powerful coalition for Global South interests.
Modi's first visit since securing a third term also aimed to address obstacles to achieving $100 billion in bilateral trade by 2030. Key objectives included promoting national currencies in trade, advancing the Chennai-Vladivostok Corridor, operationalizing the International North-South Transport Corridor, and enhancing collaboration in space and energy. The joint statement from the visit committed to easing market entry for Indian and Russian firms through subsidiaries and industrial clusters, while promoting investments, joint projects in the digital economy, science, research, and educational exchanges.
Russian companies have traditionally faced challenges in entering and expanding in the Indian market, mainly due to its longstanding prioritization of European markets and the supercilious approach of Russian business owners in engaging with Indian counterparts. They also face difficulties due to their lack of correct knowledge in understanding the nuances of the Indian business environment, such as navigating complex regulatory frameworks, forging local partnerships, and adapting to diverse consumer preferences across different regions and states.
For instance, in north India, where winters are cold, there's a higher demand for winter clothing and heating solutions compared to south India, where the climate is generally warmer year-round. Similarly, preferences for household appliances like air conditioners or water purifiers differ significantly between regions based on local weather conditions, societal (caste) hierarchy, and transportation infrastructure disparities.
As the geopolitical landscape shifts and Russia pivots towards Asia, there is both an imperative need and a corresponding interest among Russian businesses to forge deeper business ties with Indian companies. This shift comes at a time when Russia is seeking to diversify its economic partnerships amidst Western sanctions, and India is striving to maintain close to 7% annual GDP growth to achieve its goal of becoming a $5 trillion economy in the financial year 2024-25 and a $10 trillion economy by the end of this decade.
The bond between Russian and Indian businesses dates back to the times of the erstwhile Soviet Union, with notable bilateral engagements in the defense and infrastructure sectors. In fact, the Soviet Union helped India on wide-ranging fronts in its early days to create the foundational milieu upon which the country stands even today, such as the Bokaro Steel Plant, the Bhilai Steel Plant, and the establishment of various heavy machinery and equipment manufacturing units, like the Heavy Engineering Corporation in Ranchi. After the Soviet Union's collapse, India faced a financial clash with Russia in repaying its accumulated debts to the Soviet successor state. Starting in the 1990s, India proactively pursued a liberalized market economic policy to integrate into the global (Western) markets.
Starting in the 2000s decade, attempts by Russian private businesses to enter the Indian market have been sporadic and often unsuccessful. For instance, Russian telecom major MTS entered the Indian market in 2008, becoming the first new mobile operator to acquire pan-India startup spectrum. Despite this ambitious start, MTS's journey ended with its acquisition by Reliance Communications in 2016, followed by its merger in 2017. Kaspersky, a Russian antivirus and IT solutions provider that began operations in India in the late 2000s, has steadily gained market share over the years, currently holding 17.42% of India's total antivirus market and distinguishing itself as an exception among other Russian private companies.
Recent initiatives indicate a growing interest from various Russian sectors to establish a presence in India. Russia's e-commerce platforms like Ozon and Yandex Market, food supplements firm Pharmstandard, dental products distributor Simkodent, and food retailer X5 Retail Group have all expressed interest in business ties with India. Yandex, a leading Russian technology company, established a development center in Bengaluru in 2017, signaling a long-term commitment. Additionally, Russian banks, including VTB, Sberbank, and Gazprombank, are considering becoming foreign portfolio investors (FPIs) to trade on Indian stock exchanges. These steps mark a significant pivot towards integrating with the Indian economic ecosystem, which is essential for sustained success.
A new mechanism is being put in place to settle bilateral payment disputes. According to VTB Bank CEO Andrey Kostin, the issue of frozen rupees in Russian coffers has been resolved by converting the rupees into rubles through intermediaries in India and the UAE. Additionally, business corporations, through major Russian banks like Sberbank, have utilized the rupees in Special Rupee Vostro Accounts (SRVAs) to invest in Indian stocks, government securities, infrastructure schemes, and other areas. This has reduced the transaction costs of converting rupees to rubles, making trade more seamless.
Despite these efforts, the success of Russian private businesses in India remains uncertain. To achieve this, certain strategies can be implemented to overcome these challenges and foster deeper business ties with India. Firstly, adopting a more collaborative and culturally sensitive approach to business is essential. Russian companies need to invest in understanding Indian business customs and practices, and develop strategies that resonate with local partners and consumers. Building trust and nurturing long-term relationships should be a priority.
Additionally, Russian enterprises should focus on localizing their operations by hiring Indian talent who understand the market dynamics, establishing regional offices, and customizing (including marketing) products and services to meet local needs. This approach will demonstrate their commitment to the Indian market and help them build a loyal customer base.
Market research and strategic partnerships are also crucial. Russian companies should invest in comprehensive market studies to identify opportunities and challenges specific to India. Collaborating with credible trade associations, like Federation of Indian Chambers of Commerce and Industry (FICCI) and Confederation of Indian Industry (CII), can provide valuable insights and facilitate smoother market entry. Joint ventures, business partnerships, and third-party insurance can leverage local expertise and help mitigate investment-related risks.
Furthermore, engaging with the right stakeholders in the Indian government and industry is vital. Russian companies should actively seek out and build relationships with key figures who can provide support and facilitate business operations. This requires a proactive approach to networking and relationship-building at the national level and within different states, rather than focusing solely on Goa, where many Russians reside.
Finally, Russia's pivot towards Asia should be seen as a long-term commitment rather than a short-term strategy. Consistent and sustained efforts are needed to build a strong presence in the Indian market. This includes regular participation in trade fairs, business forums, and cultural exchanges that promote mutual understanding and collaboration, extending these activities to major metro cities and the next-rung cities like Ahmedabad, Indore, and Hyderabad.
Dr. Hriday Sarma is an Indian lawyer and independent researcher specializing in energy affairs across Greater Eurasia.