The first part of the series (http://bit.ly/3FvCkyn) – focused on Energy. This post will focus on Outsourcing, Pharmaceuticals, and consumer goods trades.
A reported list of Russia-sought goods has been noted in the press (Reuters). The opportunities for India to act as a trading resource for Russia can be clearly seen as luxury goods (such as Apple iPhones sourced thru India) are available on Russian eCommerce websites.
The goods sought by Russia are much more important to Russian enterprises and economic activity: Pharmaceutical goods exported from India will continue to increase. Even though they are not subject to sanctions themselves, the restrictions on payments through banks and financing institutions make such exports from G7 countries difficult. Russia has not traditionally been a large-scale importer of India’s pharmaceutical exports (trading at a volume between Taiwan and Canada). The trap for Indian exporters is getting paid for their goods in liquid financial forms. Large ruble balances would be undesirable. If rupee-based energy trade occurs the hedge and risk costs of Russian exports still fall to Indian exporters.
Transportation components and services are critical infrastructure for the Russian economy. The initiation of conflict in March 2022 has resulted in the termination of financing, services, and parts needed for almost all Russian airliners. Vehicle production at Joint Ventures or outputs from branded plants has been substantially shut down or drastically reduced. The opportunity for Indian operators of similar aircraft, or for India-local servicers, to deliver parts or services at a huge profit is clear. What is unclear is the reaction to tightly tracked trades and services (software updates for example) from Boeing or Airbus in response to other government pressures. India is dependent on the same suppliers and must avoid being sanctioned. The same logic extends to other vehicle, logistics, and shipping concerns.
A major category of “grey market” requests from Russia are for electronic goods and subassemblies. Many component-level goods (such as display screens or processing units for infotainment subsystems) are “dual use”. Conversion/diversion of certain volumes of components to Russian production of smart weapons, fire control, navigation, or communications is trivial.
India does not have a sophisticated domestic production capability for these types of components. A semiconductor used in a smartphone for positioning (GPS) functions can also be used in a smart weapon. The opportunity for Indian enterprises (or other global enterprises operating in India) to supply components to Russia is clear. The huge margins certainly will exceed Indian produced-device margins.
The trap is seen in the reaction of G7 economies when such a component is traced to India, as other components in Russian weapons have already been traced. The governmental (political) and popular (public) condemnation could be extreme and result in actions materially damaging to Indian global enterprises. The public condemnation (domestic and external) for an atrocity committed with such semiconductors is unpleasant to consider. The condemnation would not be as impactful to China in the same situation as continuing Chinese trade is unrestricted from domestic production.
Opportunities and benefits to a Dynamic India are clear – and so are the risks of traps. Even as governmental assertions of independence and a traditionally ‘unaligned’ status the 21st Century threats to global Indian enterprises and from public condemnation cannot be cast aside. A Dynamic India must also assert leadership at governmental, banking, and enterprise levels establishing policies to India’s long-term benefits.
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