India Eyes Privileged Partner Poll

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India Eyes Privileged Partner Poll

India will have been paying close attention to parliamentary elections in Russia. The two countries have plenty of shared defense, strategic and nuclear interests.

Indians will have been following today’s parliamentary elections in Russia more attentively than most Asian nations. The Indian-Russian partnership has remained surprisingly durable, despite all the changes since the end of the Cold War. India still acquires the bulk of its weapons from Russian arms sellers, while the two governments’ foreign policy goals aren’t normally in conflict and often coincide. For example, both worry about the potential of the Taliban to return to power in Afghanistan after NATO troops leave the country in a few years. Indeed, Russian President Dmitri Medvedev now refers to their bilateral relationship as a “privileged strategic partnership.”

And certainly, the two countries do treat each other in special unique ways, nit least in the defense sector. Russia has, for example, sold India some weapons systems that it offers no other foreign clients. These sales and other defense cooperation have been institutionalized in the Russian-Indian Governmental Commission on Military Technical Cooperation, which meets annually at the level of defense ministers. Russia is the only country with which India has such an institutionalized military cooperation mechanism at such a high level.  The commission, established in 2000, has two main working groups (on Military Technical Cooperation and Shipbuilding and on Aviation and Land Systems) and seven sub-groups, and it generally supervises implementation of the ten-year umbrella intergovernmental agreements on military and technical cooperation.

Russian analysts have seen India as an important element in the multipolar world order that they hope to promote, with Russia, China, and Brazil – the other members of the “BRIC” also helping to balance the power of the United States and its European and Asian allies. Yet, just as Indian leaders have made clear their unwillingness to align with the United States against China, so they are determined to avoid siding with Moscow against Washington.

Still, Russian officials are in a more favorable position than their U.S. counterparts regarding counter-terrorism cooperation with India. American policy makers have long confronted the difficult balancing act of improving security ties with India while simultaneously sustaining good bilateral relations with Pakistan. The Obama administration, like its predecessors, needs Pakistani government support to counter Islamist extremists based in northwest Pakistan. In contrast, the Russian government can more openly side with New Delhi due to its limited ties with Islamabad. Russia refuses to sell weapons to Pakistan out of deference to Indian sensibilities.

On the other hand, U.S. officials are better positioned to induce the Pakistani government to crack down on anti-Indian terrorist groups based in Pakistan. Due to its good relations with both governments, moreover, Washington is best placed to achieve a settlement to the Kashmir dispute between India and Pakistan. The Obama administration identified promoting an Indian-Pakistan reconciliation as an important objective for reorienting Pakistani security efforts toward combating terrorism. Russian policy makers, having less influence in Pakistan, find it harder to mediate between Islamabad and New Delhi.

Economic ties are another relatively weak foundation of their partnership. Both governments want to expand Russian-Indian economic ties, which have decreased as a percentage of their overall foreign trade since the Cold War. Bilateral trade amounted to only $7.5 billion in 2010. In contrast, Russia’s annual trade with China is now around $60 billion. India’s main imports from Russia consist of weaponry, machinery, chemicals and metals.

Similarly, the level of direct investment in each other’s economies is also low. India’s $4 billion of investments in Russia is heavily concentrated in the hydrocarbon sector. Indian’s ONGC Videsh Ltd., the overseas arm of state-run Oil and Natural Gas Corp. Ltd, has a 20 percent stake in the Sakhalin-1 project off Russia’s Pacific coast.  Sun Pharmaceutical Industries, based in Mumbai, is another large Indian investor in Russia. The AFK ‘Sistema” conglomerate is the largest Russian investor in India. It provides mobile telephone services to Indians.

During Medvedev’s 2008 visit to India, the two governments agreed to cooperate more on the exploration of outer space. Russia committed to launching an Indian astronaut into space in 2013 on one of its own craft, as well as to provide technical and other support to enable India to launch its own manned spacecraft in 2015.  Indian policy makers are hoping that scientific ties with Russia will enable India to enhance its own space technologies, which also have diverse military applications, including regarding ballistic missiles and space-based reconnaissance and communications.

During Medvedev’s December 2010 visit to India, the two governments signed cooperation agreements in chemicals, fertilizers, pharmaceuticals, and biotechnologies. Russia’s Vnesheconombank signed cooperation agreements with the State Bank of India and with India's Export-Import Bank. Several private companies used the opportunity to pursue Russian-Indian business deals, including the Russian petrochemical giant Sibur and India’s Reliance Group establishment of a joint venture to produce butyl rubber in Jamnagar in the Indian state of Gujarat.

Nonetheless, India’s economic ties with Russia remain concentrated in the areas of energy and defense. For this reason, the continued improvement in India’s relations with Western countries, especially the United States, presents challenges to Russian policymakers as they strive to remain one of India’s most important strategic partners.

In principle, Russia and India should be natural energy partners. After all, Russia has lots of energy products to sell, while India’s domestic energy demand is soaring due to its being Asia’s second-fastest growing major economy. Domestic production only provides for 34 million tons of the 144 million tons of oil Indians consume each year.

Indian energy managers also count on their close strategic and economic partnership with Moscow to help secure energy from Russia even while India has difficulties competing in other markets with China, whose government can provide greater assistance to China’s massive state-controlled energy corporations. Anil Razdan, a former special secretary in the petroleum ministry, explained that, “Given China’s presence on the asset acquisition scene, whatever we can do at a fair price and for good technology with Russia should be done. They have helped us in the past in the Soviet era and even after that have kept their word.”

For years, Russia has offered India opportunities to invest in its offshore oil fields of the Sakhalin island in the Russian Far East. Indian’s ONGC Videsh Ltd., the overseas arm of state-run Oil and Natural Gas Corp. Ltd, has a 20 percent stake in the Sakhalin-1 project off Russia’s Pacific coast. In addition, Russia has gained some favor in India (and Pakistan) for supporting the construction of a multi-billion dollar pipeline from Iran across Pakistan and into India. The U.S. government, for its part, has consistently opposed such a pipeline due to the required building up and development of Iranian energy infrastructure, resulting in Moscow’s gaining some credit for seeming more open to supporting India’s energy security requirements. During Medvedev’s visit to India in December 2010, Russian Energy Minister Sergei Shmatko and Indian Petroleum and Natural Gas Minister Murli Deora signed an intergovernmental accord on oil and gas cooperation. The two delegations announced more than a dozen agreements between Russian and Indian oil and gas entities. 

But the area with the most potential is arguably on nuclear issues. Russian firms are most eager to remain an important supplier of nuclear technologies, materials, and services as India expands its nuclear power capabilities. The Russian government wants to reduce Russia’s reliance on the export of natural resources and increase the volume of high-technology exports such as nuclear power plants.

Indian officials consider nuclear energy an essential element of their national strategy for meeting the exploding energy needs of their more than one billion people without relying excessively on Middle Eastern oil and gas or inflicting catastrophic damage on the world’s climate. With its massive population and its growing economy, India is expected to become the world’s third largest energy consumer by 2030, surpassing both Japan and Russia. Current Indian plans envisage a massive increase in the country’s nuclear generation capacity, from around 4,000 megawatts at present to approximately 60,000 megawatts by the end of the next decade.  Russian firms hope to achieve at least an equivalent increase in their business deals with New Delhi.

The reality is that India has only recently begun to escape from its decades-long nuclear pariah status, with international restrictions having been placed on its access to foreign nuclear technologies and fuel due to its government’s long-time refusal to sign the Nuclear Nonproliferation Treaty (NPT) and to its 1974 and 1998 nuclear weapons tests. On March 3, 2009, the International Atomic Energy Agency (IAEA), the main agency charged with monitoring states compliance with their NPT obligations, approved an Additional Protocol to India’s safeguards agreement that codified India’s commitment to place certain of its nuclear facilities – including 14 of its thermal power reactors – under IAEA monitoring even while excluding others that remain part of India’s nuclear weapons program. That commitment had proved essential for securing NSG approval the previous September to grant India a limited exemption from its guidelines prohibiting members from cooperating with states that haven’t signed the NPT or applied full-scope safeguards to their nuclear facilities as mandated by the treaty.

Atomstroyexport, Russia’s nuclear power equipment and service export monopoly, has almost completed building two 1,000-megawatt light-water VVER-1000 reactors at the Kudankulam nuclear power plant in the southern province of Tamil Nadu. The original contract for the plant’s construction was signed in 1988, a couple of years after the meltdown at the Chernobyl nuclear plant. The ensuing public protests near the site, along with the Soviet Union’s subsequent collapse, delayed the start of construction by more than a decade. It wasn’t until 2002 that Russia’s Atomstroyexport began building the plant, under an updated Soviet-era contract, first signed in 1988, and revised in 1998. That corporation, along with Medvedev and other senior Russian officials and their Indian counterparts, have sought to pacify popular anxieties about its safety by highlighting its conformity with Russian, Indian, and international safety and security standards. Russian and Indian negotiators are still negotiating whether to construct another pair of reactors with appropriate fuel assurances, for this plant. Russia and India signed a new nuclear energy cooperation agreement in 2008 that Russian analysts hope will provide an impetus for India’s purchasing additional nuclear power plants, while the Russian ambassador to India, Vyacheslav Trubnikov, indicated that Russia was prepared to supply as many as ten additional reactors to India. 

But any deal for additional Russian-provided reactors may be delayed by the popular protests at the Kudankulam site, which have already contributed to the postponed launch of the first reactor. The March 2011 disaster at Japan’s Fukushima Daiichi intensified what had until then been low-key if protracted public opposition to the reactors. The 2004 Indian Ocean tsunami devastated communities near the site. The protesters claim that the local population should have been consulted before the Indian government decided to construct the plant. At least half a million people live within the 30-kilometer perimeter around the site, and evacuating them all in a timely manner will prove difficult. Local fishermen particularly worry about the planned discharge of low-level liquid radioactive waste into the Indian Ocean. Scientists and technical analysts backing the protests claim the Tamil Nadu can secure safer energy through increased production of wind and solar power.

A similar mass protest campaign by local farmers and fishermen, supported by NGOs and scientists, led to the cancellation of the planned construction of another 1,000-megawatt Russian-built nuclear power plant at Haripur in the Indian state of West Bengal in August 2010.  Central and local government officials have held off launching new nuclear plants until the investigations of the Fukushima disaster have been completed. But in these cases, Russia has yet to sink substantial costs into the projects.

Russia also faces stiff competition from other foreign nuclear reactor suppliers – including Areva, Westinghouse, and other Western nuclear reactor manufacturers – now that the NSG has agreed to permit India to purchase foreign nuclear equipment and fuel despite New Delhi’s continuing refusal to join the NPT. The Russian government has therefore sought to prevail over its commercial rivals by offering India more generous terms than Western competitors. For example, whereas the United States imposes numerous and demanding conditions on nuclear-related sales to India – like legally obliging requiring New Delhi to return any U.S.-supplied nuclear materials and equipment if it resumes nuclear weapons testing, or less formally requiring India to curtail its ties with Iran – Russia doesn’t stipulate such preconditions and has committed to provide an uninterrupted supply of fuel to any reactors India buys from Russia. The latest Russian-Indian civil energy cooperation agreement, moreover, provides for joint research and development between the two countries’ nuclear industries, implying generous technology transfers that will accelerate the day when Indian companies can manufacture their own advanced nuclear reactors.

All this said, India’s Civil Liability for Nuclear Damage Act is having the same negative impact in Russia as with other potential foreign suppliers of nuclear reactors to India. The Indian legislation holds suppliers liable for accidents, while the IAEA Convention on Supplementary Compensation, signed by some 80 countries, limits operators responsibility for some disasters while exempting them from others. Whereas the two almost completed reactors at Kudankulam are exempt from the new liability law since their contract dates to 1998, any future reactor contacts would be covered. Russian officials have joined other governments in urging that India relax its domestic nuclear liability law. Even here, however, Russia has an advantage over its Western competitors since they are being built by state-owned companies that enjoy Russian government financial backing.

Early counts and exit polls from today’s election suggest that Putin and Medvedev’s United Russia Party has lost significant support, and may fail to break the 50 percent mark. Yet while the outlook for Russia’s domestic political is looking a little murky, the increasing importance of India for Russia’s regional may well be increasingly clear.