There’s never a dull moment in Eurasia. While Prime Minister Narendra Modi would be skipping the Shanghai Cooperation Summit, soon to be held in Kazakhstan, the long overdue bilateral meeting between India and Russia seems likely in July.
This salient expression of India’s multi-alignment comes at a time when heady geopolitical winds have been surging. As far as its old friend Russia is concerned, India must iron out genuine issues that have been haunting the two sides for a few years.
The decision to not attend the SCO summit was a bit surprising. And Modi’s gala welcome at the G7 in Italy—a grouping of elite Western economies where India is not a member but has been invited consistently—exemplified the contrast. However, the likely revival of the Modi-Putin summit has once again underscored that India operates in national interest and that it is time to address emerging realities constructively.
In the wake of the Ukraine war, and the unprecedented deepening of strategic alignment between Russia and China, New Delhi’s ties with Moscow have to evolve. From the largest supplier of defence equipment, Russia is now playing a more visible role in India’s energy sector. However, the aftermath of a long-standing war of attrition has seen a weaponisation of everything. It’s important to fix bilateral issues through enabling frameworks at the highest levels.
Priorities of Modi 3.0
A humbled NDA mandate is to zoom in on economic empowerment and national security. Data shows that amid an overall fall in foreign investments in India, China +1 diversification has not been working either. Gaping trade deficits have mellowed the benefits of India’s expanding international trade, with New Delhi recording its top-two trade deficits with Beijing and Moscow.
France and the United State’s meteoric rise in India’s defence sector has changed the modus operandi of New Delhi’s defence industry cooperation. Today, Indian defence industry pathways are closely linked with the country’s evolving critical tech strategy on the one hand and with the geopolitics of the Indo-Pacific on the other. It is not surprising that the tandem between critical and emerging tech, AI and semiconductors, and the defence industry is most apparent in India’s extensive defence industrial roadmaps with the US and France.
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Five imminent concerns
What should the PM’s agenda be now that the two sides are reportedly preparing for their first bilateral meeting in half a decade? At least five interrelated issues must be prioritised.
The first is the mounting trade deficit. Rerouting of crude oil due to the West’s energy sanctions on Russia has been most consequential for the global oil market. Millions of barrels of discounted crude have found their way to India, entrenching Moscow, once the largest weapons provider, as the brand-new energy supplier. In 2024, compared to overwhelming imports at $65.7 billion, exports from India remain paltry at about $4 billion with a trade deficit standing at $61 billion.
This trade deficit couldn’t be closed despite oodles of goodwill on both sides because its structural reasons are technical. Exports to Russia remain limited because trading with sanctioned entities has landed sanctions on Indian businesses. India and Russia need to build this confidence back into Indian exporters and guarantee the safety of their interests, which remains an arduous exercise.
Second, the rupee-ruble mechanism not working smoothly is a more significant factor entwined with a trade deficit. Ruble’s convertibility is the rub because it remains a currency artificially propped up by capital controls, a critical stabiliser against financial sanctions imposed by the West. The widening trade deficit has landed billions of dollars worth of Indian rupees in Russian Vostro accounts in different Indian banks. To keep the payment channels working, India has settled the bulk of the oil trade in Dirhams and marginally in Yuan whereas most of the payments against weapons orders are most likely done in rupees.
While it doesn’t matter much if the Yuan is used for settling some of the payments, it is against India’s interests to make a majority of the payments in Yuan because it strengthens China’s fiscal grip over de-dollarised trade. The only possible way out of this deadlock is for Russia to invest the stuck rupees back into India. This will create new pathways for India-Russia economic relations to evolve and reduce the trade deficit in a meaningful manner.
Surprisingly, while an easy solution prima facie, it hasn’t fared well beyond limited endeavours from Russia. As the cost of the Ukraine war is rising, the Kremlin must offset the decline in energy revenues from 2021 to 2024 and the strain on its available foreign reserves to continue committing seven to eight per cent of its GDP to the war economy.
This trend corroborates a recent report that showed Gazprom recording a $6.7 billion loss for the first time in two decades.
Despite these structural difficulties, creating pathways for investing a bulk of those rupees back into India remains the best bet for now. More tangible Russian investments into India should be on the top agenda when the two leaders meet.
The third issue that demands imminent attention is the deliveries of the remaining two consignments of the S-400 air defence systems. As per the latest reports, they are likely to be delivered by the third quarter of 2026. However, uncertainty looms on the matter of spare parts and maintenance and needs to be resolved. The Ukraine war understandably remains a top priority for the Russian MIC, but for India, S-400s are a critical component of its air defence layering. The last thing for a country with two disturbed and volatile borders is to leave a critical defence acquisition to the wishful thinking of how good or bad the Ukraine war might turn out to be.
The fourth issue concerns India’s apprehensions regarding Pakistan being invited by Russia to join the International North-South Transport Corridor (INSTC). Reportedly, Pakistan has agreed to join the project in principle and has begun the procedure. From India’s perspective, what made the INSTC so relevant was the absence of both China and Pakistan from a project that significantly expanded India’s global footprint in connecting diverse geographies. With these new developments, however, it is imperative for the Indian leadership to discuss the scenarios of Pakistan’s involvement. An entry into the INSTC must not strengthen Pakistan’s case for a likely entry into the BRICS (Brazil, Russia, India, China, and South Africa) grouping.
The fifth issue is the likely damage to Russia-India ties from the repeated instances of forceful recruitment of Indian nationals into the Ukraine war. These activities have continued despite India expressing serious reservations and requesting the Russian side to put a ‘verified stop’ to such activities.
The seriousness of the matter came to light yet again when the Ministry of External Affairs released an unusually sternly worded public statement on the death of two more Indian nationals in the war. Released earlier this month, it put forth India’s stand in unambiguous terms stating the impact on consonance in bilateral ties if the matter remains unresolved.
A leaders’ summit could be the best platform to convey the gravity of New Delhi’s neutrality in the war across all domains.
Engagement with Russia remains an important part of India’s foreign policy but has to re-adjust to the uncomfortable realities of the past few years. Russia’s silence on China’s betrayal in Galwan, the deepening of an all-encompassing strategic alignment between the two after the Ukraine conflict, and Moscow’s preference for ‘Asia’ and not ‘Indo’ Pacific show India and Russia must work out new semantics and pathways. Only then can they continue meaningful bilateral engagement suited to changed realities.
The cooperation matrix between the two sides needs a reset and the long-awaited leaders’ summit could be key to that.
The writer is an Associate Fellow, Europe and Eurasia Center, at the Manohar Parrikar Institute for Defence Studies and Analyses. She tweets @swasrao. Views are personal.
(Edited by Zoya Bhatti)
As a dove, one will hope for success of the Russia – India – China ( RIC ) grouping. Russia offering its good offices not so much to help resolve India – China differences as to help stabilise a troubled relationship that could be veering into conflict. The Ladakh standoff has gone on for too long now.