Engineering goods export to Russia hits record high as Ukraine war enters its third year
NEW DELHI : India’s export of machines, auto parts, steel and aluminum products, internal combustion (IC) engines, pumps and other items to Russia are on the rise, with outbound shipments in the ‘engineering goods’ category doubling in 2023 to cross a record $1-billion mark. This comes as demand continues to remain weak in key markets including Europe and the US, where India’s exports in the same category slipped over 10 per cent last year.
Even as the Russian economy was slapped with crippling economic sanctions including being cut off from the Worldwide Interbank Financial Telecommunications (SWIFT) financial transaction processing system following the start of the Ukraine war, the output of Russian industries supplying goods to its military has surged several folds due to the extended war on its western border.
While India’s exports to Russia have surged, it has only been able to cater to a minuscule portion of the demand due to lack of a smooth payment mechanism. While India and Russia suspended talks to settle bilateral trade in rupees last year due to trade imbalance, Russia’s trade with China has skyrocketed surpassing a record $200 billion, with 95 per cent of the trade taking place in Russian ruble and China’s yuan.
“Requirements of engineering goods in Russia have been rising. Orders are coming in large numbers and the rupee trade is taking place. But not the way we wanted. The quantum continues to remain small as some banks are executing the order and some refraining from it. Exporters are bullish on demand from Russia and exports by the end of the financial year could jump by 100-120 per cent compared to FY22,” Arun Kumar Garodia, Chairman, Engineering Export Promotion Council of India told.
Official data from the commerce and industry ministry showed that India’s total exports to Russia in 2023 surged 40 per cent to cross the $4-billion mark, largely driven by engineering goods which nearly doubled to $1.32 billion in 2023 from $680 million in 2022. Sharp gains were seen in the drugs and pharmaceutical category and organic and inorganic chemicals too.
On the contrary, India’s engineering goods export to Europe fell 11 per cent to $24.58 billion last year compared to $27.66 billion in 2022. Outbound shipments in the same category to the US slipped over 13 per cent to $17.27 billion last year compared to $19.56 billion. This was broadly in line with the United Nations Conference on Trade and Development (UNCTAD) assessment that said that global trade slipped by a massive $2 trillion in 2023.
Russia’s annual growth accelerated to 5.5 per cent in the third quarter from 4.9 per cent sequentially, which was the fastest pace of growth in more than a decade aside from a spike when Russia exited Covid lockdowns, exceeding the expectations of economists, Bloomberg reported.
India’s export growth to Russia comes after the near collapse of Moscow’s trade with the West and Ukraine. Sanctions and counter-sanctions meant closer trade ties with China and India, the countries that are receiving bulk of the Russian oil that was redirected from the West. Sourcing from India and China comes after Russia banned import of over 200 goods from the West, including telecoms equipment, medical, vehicle, agricultural, electrical equipment, and timber products. Prior to the war, Russia imported a range of industrial items including electrical, electronic equipment, machinery, nuclear reactors and boilers among other items from Ukraine worth nearly $4 billion.
Interestingly, Russia’s banking sector has also shown resilience from the western sanctions. Bloomberg reported that the largest Russian bank, state-owned Sberbank PJSC, which was cut off from the SWIFT international payments system, recorded record ruble profit in 2023. Garodia said exports could take a hit in 2024 due to the disruption in the Red Sea route.
“There is also a shortage of containers, and shipping lines, facing capacity issues, are raising prices and adding extra charges during busy times. Many member exporters have reported lower profit margins, leading to holding back on orders until things improve. The exporting community is worried that exports might decrease in the coming months because of these challenges,” he said.