Indian Prime Minister Narendra Modi’s visit to Russia, and the promise of greater collaboration and trade, was a crude reminder of India’s significance – not just to Russia and President Vladimir Putin, who welcomed Modi warmly, but as a balance to China, and a Western touchstone in the region. Modi is crucially aware of India’s relatively unique leveraging power.
The implications of these agreements are huge. They strike at China’s ambitions in the region and Russia’s strategic autonomy. Ultimately, India is a net-gainer from this. The country stands to draw Russia away from Beijing, something that Moscow is no doubt keen to do. India is also unlikely to be challenged by its Western partners. Ultimately, while India and Russia’s economic agreements might appear smaller than those with other partners, the real significance lies in the impact on the Sino-Russian partnership and China’s wider goals.
The origins of India’s foreign policy lie in Modi’s commitment to autonomy. Modi, despite the setback of comparatively poor election results this year, has been able to shape India’s foreign policy to fit his great nationalist mission. He has taken a similar line to China in regard to Russia’s war in Ukraine: That is, India has called for peaceful resolutions while increasing economic cooperation with Russia.
India is the second largest importer of Russian oil behind China. New Delhi has made money by refining Russian oil and exporting it internationally. Modi’s Bharatiya Janata Party (BJP) has also retained political capital because savings on cheaper Russian oil have kept fuel prices in India low. In this way, Modi has been able to make political gains out of the war. India assists Russia’s circumvention of international sanctions by allowing Moscow to pay with its own national currency for its trade with India. Meanwhile, Modi has supposedly been able to negotiate the return of a small number of Indian nationals who were recruited as soldiers in Russia; others have been killed in Ukraine.
The purpose of Modi’s so-called multi-aligned foreign policy is that he can make gains from a desperate and isolated Russia and, in doing so, become an important strategic partner for the West and a vex for China.
But Modi has made sure India is also incredibly well integrated with the West along economic and security grounds. According to the European Commission, the EU is India’s largest trading partner, accounting for 12.2 percent of India’s total trade (China and the U.S. account for 10 percent each). According to India’s Department of Commerce, the EU is one India’s largest sources of foreign direct investment, valued at nearly $108 billion by December 2023. But this is less than half of EU foreign investment in China and Brazil, which are both way over $200 billion. The EU and Indian trading relationship is ultimately in India’s favor, however slightly. According to the Indian embassy in Brussels, the trade deficit was valued at around 16.4 billion euros (around $18 billion).
The EU is not alone in turning to India to counterbalance an economic dependency on China. The U.S. Trade Representative stated that, in the year between 2021 and 2022, U.S. FDI in India increased 15 to 1. Trade totaled nearly $200 billion in 2022, with India exporting far more than the United States did.
A lot of India’s success economically stems from its status as a liberal democracy in an authoritarian region. The impact of de-risking and decoupling with authoritarian states like China and Russia has been a positive phenomenon for India. For example, as of 2023, Apple produced one in seven of its phones in India. According to The Economist, Indian tech manufacturing has grown by around $70 billion since 2016. This is partly driven by surging domestic demand, but also has a lot to do with concerns about over-dependence on Chinese manufacturing. It’s also a symptom of broader steps to consolidate economic relations with politically aligned states, which India has endorsed.
India’s economic relations with Russia are not the same as its ties with the West, but they are still important. Indeed, India has incredibly diverse partners across different industries. As Dr. Jagannath Panda wrote for the United States Institute for Peace, prior to the July meeting between the two heads of state, for India, Russia is a useful provider of cheap crude oil, automotive parts, and nuclear power infrastructure. With the West, India is far more focused on advancing specialist industries in its drive toward self-reliance and economic progress. This includes increasingly critical semiconductor production with which India has signed up for greater cooperation with the EU. Similarly, despite India’s close relationship with Russian defense production, its cooperation with the U.S. is more attractive for developing its own systems to counter an aggressive China.
However, India’s balancing of its relationships has not always worked. India suffered a blow in February 2024 when one of its own companies was included in a raft of sanctions due to its close relationship with Russia.
When it comes down to it, India has made gains because of its relationship with Russia, but Moscow is not going to be the avenue by which Modi manifests his economic and political vision. India needs the West for that. Even for something as vital as arms, India has been able to diversify. Russia was historically well integrated into the training and supplying of the Indian Army, at one point accounting for close to all of Indian arm imports. But India has since diversified its arms importers.
India is not without alternatives for rich friends and allies – Russia is. The common concern for them both is China.
Russia cannot replace China with India, and the recent summit was not an attempt to do so. For example, the $100 billion bilateral trade target Modi and Putin set for 2030 would be less than half the value of Sino-Russian trade in 2023 alone. What India has done for Russia is provide some breathing room.
China is overtaking Russia in regions where there was once a more amicable balance. This impacts Russia’s strategic autonomy, something which could be addressed by greater economic cooperation with India. In a joint statement, one significant feature of the agreed plans was not only the ministerial interaction, or the negotiation of free trade between the two states, but the allowance of the two countries to trade using their own currencies.
For trade with China, Russia has had little option but to use the yuan. Alexandra Prokopenko characterized this as the “yuanization” of the Russian economy, a trend that started before the war but has accelerated since. In December 2023, nearly a third of Russia’s foreign trade was settled in yuan, a trend that has increased despite sanctions. Russia and India’s agreement to settle trade using their national currencies can strengthen the ruble and reduce a dependence on China’s yuan for cross-border trade, something that both sides had previously suspended discussion on. This would negatively impact China’s concerted effort to offer the yuan as a significant challenger to the U.S. dollar.
None of this is explicitly anti-China, but Russia is taking clear steps to reduce its dependence on Beijing, economically, and politically.
India and China’s economic and territorial disputes cannot be solved by Russia; Russia no longer has that level of influence. The Modi-Putin agreements, while not comparable to the scale of Sino-Russian trade, or India’s trade with the West, drive home two critical points. The first is the success of Modi’s multiple alliances. India has been able to diversify its partners, suppliers, and buyers effectively, addressing Modi’s domestic goals.
The second point is just how much of this does not align with China’s hopes. Moscow’s disquiet regarding its dependence on Beijing is real. Looking ahead, while Modi may gain a foot in the door of the Kremlin, from which he could address Russia’s war, this is not likely. The true impact of this growing relationship is on Russia’s strategic autonomy from China.
Although not unaffected by the mood and money from Beijing, Russia has shown an ability and a desire to work with a state – India – that is not on China’s side. This might be driven by desperation, but there are inevitably strategic intentions too. Russia has committed to economic and political integration with India. This will harm China’s broader ambitions such as the marginalization of the dollar and the use of the yuan in the region.
Similarly, India will now appear as a closer partner to Russia, meaning the West might try more concertedly to work through New Delhi to reach Moscow, rather than Beijing. This also implies that the West will not penalize India for its involvement with Russia. That would be counterproductive, as the West gains from having a closely aligned and integrated partner with access to the Kremlin.
Modi’s trip represents a bubbling under the surface of the Sino-Russian partnership. As time goes on, and issues between India and China arise, it will be important to look to Russia and how Moscow responds.
There is no telling what might change between Moscow and Beijing as India steps evermore into the orbit of their partnership. However, one thing is apparent: it will likely not be what Beijing wants.