What’s India Doing in Russia’s Far East?

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What’s India Doing in Russia’s Far East?

Is India’s interest in the Russian Far East driven more by strategic and geopolitical considerations than strict business interests?

What’s India Doing in Russia’s Far East?
Credit: Russian Presidential Press and Information Service

Indian Prime Minister Narendra Modi’s visit to Russia in early September saw the two sides sign several pacts in the fields of defense, nuclear energy, natural gas, maritime connectivity, and trade. India and Russia pledged to triple bilateral trade to $30 billion by 2025 and also signed a five-year roadmap for cooperation in the hydrocarbon sector.

However, it was India’s initiatives vis-à-vis the Russian Far East that was the highlight of Modi’s time in Russia.  At the fifth summit of the Eastern Economic Forum (EEF) on September 4-6 in Vladivostok, Modi pledged a $1 billion Line of Credit for development of the Russian Far East.

A vast region, the Russian Far East stretches from Lake Baikal, the world’s largest freshwater lake, to the Pacific Ocean and comprises roughly a third of Russia’s territory. Although it is rich in natural resources including minerals, hydrocarbons, timber and fish, it is an economically underdeveloped region. The region faces several challenges, including a harsh climate, sparse population, increasing outmigration, poor infrastructure and lacking connectivity. These have contributed to keeping the Russian Far East largely underdeveloped.

The Russian Far East’s underdevelopment has been a source of concern for Moscow. The far-flung region has a history of separatism and Moscow is understandably apprehensive that its underdevelopment will spark secessionist sentiments, which could be stoked by neighboring powers, particularly China. These apprehensions prompted the Russian government’s decision in 2006 to prioritize development of the Far East.

In the wake of the Ukraine crisis in 2014, the U.S.-EU campaign to isolate Russia gathered momentum. Sanctions were imposed on Russia and it had to look elsewhere for markets, investment, and technology. These circumstances led to Russia pivoting toward Asia, with that turn Moscow’s attention to its Far East became more pronounced.

In 2015, Putin set up the EEF to draw investment into the Far East and to integrate the region with East Asian economies. In the years since, the EEF has seen the participation of leaders from several countries including Japan, China, Mongolia and South Korea, among others.

While 2019 is the first time that India has participated in the EEF, it is not new to the Russian Far East. India opened a consulate in Vladivostok in 1992, the first country in the world to do so. In the decades since, its interest in the Far East region, especially its oil and gas reserves, has grown. Indeed, back in 2001 India’s Oil and Natural Gas Corporation acquired a 20 percent stake in the Sakhalin reserves and over the last couple of years Indian companies have started announcing investments in the Russian Far East. In December 2017, for instance, Tata Power announced that it had secured a $4.7-million mining license for a thermal coal mine in the Kamchatka peninsula.

In addition to providing India with access to resources, India’s participation in the Russian Far East’s development “could pave the way for movement of Indian labor, both skilled and unskilled, to the region,” a member of the delegation from the Federation of Indian Chambers of Commerce and Industry (FICCI), which accompanied Modi to Vladivostok, told The Diplomat. Indian workers could benefit from employment in labor-intensive sectors like ship-building and mining in the Russian Far East, he said.

India and Russia are also looking to open a maritime route linking Vladivostok with the southern Indian city of Chennai. In addition to almost halving the distance and time taken for maritime cargo to move from India to Russia, the Chennai-Vladivostok route will provide India with an alternate to the Suez Route on which it currently depends for trade with Europe.

Economic interests only partially explain Moscow-Delhi cooperation in the Russian Far East. Geopolitical and strategic calculations are strong drivers of the partnership as well.

A larger footprint in the Russian Far East enhances India’s presence and influence in China’s immediate neighborhood. Its use of the Chennai-Vladivostok maritime route would not only increase India’s presence in the China-dominated South China Sea but it is also seen as a step toward countering China’s Belt and Road Initiative (BRI), which has deepened Chinese influence and presence in India’s neighborhood. 

As for Russia, the role India can play as a potential balancer against China’s overwhelming presence in the Russian Far East underlies Moscow’s inclusion of India in the EEF.

China accounts for nearly two-thirds of foreign direct investment that the Russian Far East has attracted over the past four years. Although Russia needs Chinese investment it is uneasy with Chinese projects as they often use only Chinese workers. This, and the illegal influx of Chinese nationals into the Russian Far East — which borders the heavily-populated Chinese provinces of Heilongjiang, Jilin, and Liaoning — together with the growing outmigration of Russians from the region, is altering the demographic composition of the Far East. Russians fear that in addition to triggering xenophobic tensions in the Far East, the influx of Chinese could pave the way for a “demographic invasion.” Such fears are amplified by memories of the violent Sino-Soviet confrontations of the 1960s. 

Given such apprehensions it is possible that Russia views Indian capital and labor in the RFE as a way to offset China’s overwhelming presence in the region.

The India-Russia relationship in the Russian Far East is complementary. Indian analysts point out that while the region is labor-scarce, it is resource rich. The Russian Far East needs capital, technology and markets. Meanwhile, India is a country with a labor-surplus and a resource-deficit, in need of energy, mineral resources and farming land. Russia is in a position to meet Indian requirements and vice-versa, the FICCI official said, pointing out that this “bodes well for India-Russia cooperation in the [Russian far East].”

In the 13 years since Russia turned to its Far East, there has been some positive change in the region. Industrial production increased by 4.4 percent in the Far East in 2018, which is 50 percent higher than the national average, says Artyom Lukin, Associate Professor at the School of Regional and International Studies in Russia’s Far Eastern Federal University.

“The potential opening of the Northern Sea Route, Japan’s introduction of the eight-point plan in 2016, South Korea’s nine bridges approach to Russia under the New Northern Policy, all point to a rise of [East Asian] interest in the [Russian far East],” writes Nivedita Kapoor, researcher at the New Delhi-based Observer Research Foundation.

However, the socioeconomic situation in the region has not changed, as evidenced by outmigration from the region, Lukin says. Moreover, the region isn’t doing too well with regard to foreign investment. According to him, the billions of dollars in investment that officials say the region has attracted in recent years refer to intent rather than real investment. Few strong projects with foreign capital have taken off. The few that have gotten off the ground are oil and gas projects in Sakhalin. These deals were sealed in the 1990s and 2000s, before Moscow’s turn to the East.

Asian investors, including China, are “keeping their distance from the Russian Far East,” Lukin says. They are of the view that “the risks of doing business in the Russian Far East do not justify the expected profits,” he says. 

Additionally, the rift between the West and Russia, illustrated by U.S.-led sanctions on Russia, scare potential foreign investors away from the Far East.

Indian businessmen, too, could find that the risks of doing business in the Russian Far East far outweigh the profits. Is India’s interest in the region driven more by strategic and geopolitical considerations than strict business interests?

Dr. Sudha Ramachandran is an independent journalist/researcher based in Bangalore, India. She writes on South Asian political and security issues.