New Delhi Seven years after the expiry of the investment treaty between India and Russia, the two countries have launched negotiations to expeditiously conclude a fresh pact to ramp up investments and business cooperation, officials from both sides said.
Negotiations for the proposed investment treaty were held virtually during July 18-19, a little more than a week after the issue figured at a meeting between Prime Minister Narendra Modi and President Vladimir Putin in Moscow on July 9. Officials from both countries mutually agreed to speedily conclude an agreement to promote and protect investments, the officials said on condition of anonymity.
A joint statement issued after the India-Russia Summit in July said the two leaders had directed officials to commence negotiations for signing a bilateral free-trade agreement in investments and services. The leaders also set a bilateral trade target of $100 billion by 2030.
“India and Russia conduct trade in local currencies, the rupee and rouble, and bilateral merchandise trade has jumped significantly. India’s exports to Russia jumped over 35% in FY24, as compared to FY23,” one official said.
“Similarly, Russian imports, mainly petroleum, saw growth of over 32%. Bilateral trade is booming, which paves the way for other avenues such as trade in services and foreign direct investments.”
While no time frame has been set to finalise the treaty, both sides are hoping to conclude it as soon as possible, the officials said.
A second official said the two sides are “close to moving forward” with the investment treaty since it is a “good time to take practical steps to ensure the protection of investments”. The proposed treaty will enhance the mutual prospects for investments, he said.
“This is an important step to further upgrade trade and investment cooperation. A large number of business delegations from Russia have been visiting India to explore possibilities in energy, petrochemicals, infrastructure, construction and railways,” the second official said.
India and Russia aimed for total bilateral investments of $50 billion by 2025, after the figure crossed $30 billion in 2018. “Investors of both countries have common interest in certain sectors where they can complement each other in the value chain. For example, India has interests in the upstream areas of the oil and gas sector, whereas the Russians are keen on India’s downstream sector,” a third official said.
On the Indian side, there is interest in investing in the development of Russia’s Far East, the northern sea route, energy, infrastructure and shipbuilding, especially ice class vessels strengthened to navigate sea ice, the officials said.
Other areas of interest to both sides are the pharmaceutical value chain, steel, and banking. The Russian side has invited Indian investors to implement hi-tech investment projects in its Far East. On the other hand, India has invited Russian investors to set up manufacturing facilities in greenfield industrial cities under its industrial corridor programme.
Against a bilateral trade target of $30 billion for 2025, merchandise trade between the two sides crossed $65 billion in 2023-34, with the trade balance (about $57 billion) heavily in Russia’s favour.
India exported goods worth $1.74 billion in the first four months of the current fiscal, with 32% year-on-year growth. Russia’s exports to India rose by 20.3% to $23.78 billion in April-July 2024.
“Russia is keen to invest part of the trade surplus in India because it is a fast-emerging economy,” the first official said.
A bilateral investment pact with Russia – based on a model treaty of 1993 – was signed in December 1994 and enforced in August 1996. India terminated this agreement April 2017 along with other bilateral investment pacts, the third official said. The model text of 1993 had serious deficiencies as it contained provisions susceptible to broad and ambiguous interpretation by arbitral tribunals, he said.
Investment treaties are mutually agreed legal instruments between two countries for fair and equitable treatment of foreign investments at par with domestic firms. Using the model treaty of 1993, India signed pacts with 83 countries till 2015 and 74 of these were enforced.
India first faced major problems with the model treaty in 2011, in the form of an adverse award in the White Industries Australia Ltd case. Later, a spike in international arbitrations prompted India to revise the model text, and this was adopted in 2015. After the revised text of 2015, the government terminated investment treaties with 77 countries, out of the total of 83 signed.