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India And Russia Fast-Track Negotiations for New Investment Treaty to Boost Bilateral Trade

After a seven-year gap following the expiration of their previous investment treaty, India and Russia have initiated negotiations to finalize a new agreement aimed at bolstering investments and expanding business cooperation between the two nations. According to officials from both sides, these discussions mark a significant step toward strengthening economic ties.

Virtual Negotiations Begin After Modi-Putin Meeting

The latest round of negotiations for the investment treaty took place virtually from July 18-19, shortly after the topic was discussed during Prime Minister Narendra Modi’s visit to Moscow, where he met with President Vladimir Putin on July 9. Following the meeting, officials from both countries agreed to expedite the process of concluding a new treaty that would promote and protect investments.

A joint statement issued after the July summit underscored the leaders’ commitment to starting negotiations on a bilateral free-trade agreement focused on investments and services. Both countries also set an ambitious target of reaching $100 billion in bilateral trade by 2030.

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Bilateral Trade Sees Significant Growth

India and Russia have already seen substantial growth in their bilateral trade, with the two nations conducting transactions in their local currencies – the Indian rupee and the Russian rouble. “India’s exports to Russia jumped over 35% in FY24 compared to FY23, and similarly, Russian imports, particularly petroleum, grew by over 32%,” an Indian official stated. This surge in trade is expected to pave the way for further cooperation in areas such as services and foreign direct investments (FDI).

Despite the ongoing negotiations, there is no fixed timeline for finalizing the new investment treaty. However, both sides are keen to wrap up the process as quickly as possible. “We are close to moving forward with the investment treaty, and it is a good time to take practical steps to ensure the protection of investments,” a second official confirmed.

Investment Opportunities Across Sectors

The new treaty is anticipated to open doors for greater investment opportunities, with officials highlighting mutual interests in several key industries. A large number of Russian business delegations have visited India recently, exploring possibilities in energy, petrochemicals, infrastructure, construction, and railways.

In 2018, India and Russia set a goal of reaching $50 billion in total bilateral investments by 2025, after crossing the $30 billion mark. “Investors from both countries share common interests in sectors where they can complement each other in the value chain. For example, India is interested in the upstream areas of oil and gas, while Russia is focused on India’s downstream sector,” a third official noted.

India has also shown interest in investing in the development of Russia’s Far East, focusing on energy, infrastructure, and shipbuilding projects, particularly in building ice-class vessels capable of navigating through sea ice. Additionally, both countries have identified opportunities in the pharmaceutical value chain, steel, and banking sectors.

Russia has extended invitations to Indian investors to participate in high-tech investment projects in its Far East, while India has encouraged Russian firms to set up manufacturing facilities in greenfield industrial cities under its industrial corridor program.

Trade Surpasses Expectations

India and Russia initially set a bilateral trade target of $30 billion by 2025. However, by 2023-24, merchandise trade between the two countries had already crossed $65 billion, with the trade balance heavily in Russia’s favor. In the first four months of the current fiscal year, India’s exports to Russia were valued at $1.74 billion, marking a 32% year-on-year increase. Meanwhile, Russian exports to India grew by 20.3%, reaching $23.78 billion from April to July 2024.

“Russia is keen to invest part of its trade surplus in India because it recognizes India as a fast-emerging economy,” said one of the officials.

Challenges with Previous Investment Treaties

The previous bilateral investment agreement between India and Russia, based on a model treaty from 1993, was signed in December 1994 and enforced in August 1996. However, India terminated this agreement in April 2017 along with several other investment treaties. According to officials, the 1993 model treaty had significant shortcomings, including provisions that were open to broad and ambiguous interpretations by arbitration tribunals.

India’s difficulties with the 1993 model surfaced in 2011, particularly after an adverse award in the White Industries Australia Ltd case. In response to a subsequent increase in international arbitration cases, India revised its model investment treaty in 2015. Following this revision, the government terminated investment treaties with 77 countries, out of the 83 originally signed.

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Srishti Mukherjee

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