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3 Russia taps India's
opportunities By Zorawar Daulet Singh
NEW DELHI - Early this month, Indian
National Security Adviser Mayankote Kelath
Narayanan, in remarks to his Russian interlocutor,
noted: "President Vladimir Putin's visit to India
may be transformed into a great event, which will
have big significance for the development of
relations between our countries." Putin arrives in
New Delhi this week for a visit that is important
from a bilateral perspective, since Indo-Russian
ties, excluding the flourishing military
component, have lagged behind in other equally
important spheres.
Specifically, economic
relations between the two countries have received
scant attention from Indian policymakers and industry
leaders, who have been unable
to discern fully the implications of Russian
economic resurgence, and the opportunities it
provides to India's own economic development.
Moreover, the "rapid restoration of Russia's
autonomy in its foreign affairs" implies that a
well-crafted bilateral economic foundation will
ineluctably translate to mutually beneficial
political cooperation, hardly an unwelcome
development given the broad convergence of
Indo-Russian interests on most international
issues. [1] But an economic underpinning is vital
to what would otherwise remain a hollow "strategic
partnership".
At the outset, it may be
instructive to note Russia's current macroeconomic
status. Russia's gross domestic product last year
crossed US$1 trillion, with the federal government
retaining a $75 billion fiscal surplus. In
addition, Moscow's stabilization fund and its gold
and currency reserves totaling almost $400 billion
represent the world's third-largest
foreign-exchange holding. Such overwhelming
macroeconomic achievements cannot be ignored.
Structural convergence Interestingly, in many respects, both Russia
and India face similar challenges in their
economic transition. Both are seeking to build a
strong industrial base and to boost their
manufacturing sectors, to achieve diversification
and balanced growth. While Russia is heavily
dependent on its natural-resource complex, India
is overly reliant on its services sector.
In Russia's case, the Soviet implosion in
1991 contributed to a massive contraction in
investment in infrastructure and core auxiliary
industries. India has also been unable to expand
capital investment substantially and reform the
"commanding heights" of the economy, with the
implication that growth has come largely from the
services sector, which could for the most part
avoid such supply-side constraints.
A
recent Indian study called for cooperation with
Russia on innovation and research and development
in manufacturing, which would help both economies
lower production costs and adopt
productivity-enhancing solutions. This is
important because cross-country comparisons
suggest that India's labor-cost advantage is
invariably neutralized by its low labor
productivity.
Ostensibly, this should also
include cooperation on higher technical education,
particularly in the areas of medicine, engineering
and high technology. A huge challenge awaits
India, where fewer than 8% have access to higher
education, of whom even fewer are employable in
the fast-growing sectors.
India's renowned
Indian Institute of Technology (IIT) could lobby
New Delhi to push for an Indo-Russian
higher-education partnership, which could leverage
on Russia's enviable technological tradition,
which still churns out 200,000 science and
technology graduates each year. This would both
elevate the quality of high-technology research,
and therefore technology absorption, in India and
enhance mutually beneficial scientific-technical
cooperation. India could also offer to open
offshore campuses for its Indian Institute of
Management, a leading chain of business schools in
India, which are equivalent to the IITs in quality
and reputation.
Those skeptical of
Russia's potential as an innovation powerhouse
should discern recent strategic decisions by
aviation major Boeing. Back in 1998, Boeing opened
its Moscow Design Center. By early 2000, Russian
engineers were integrated into the design process
for everything Boeing makes. The Russian
employees, spread over seven cities, were working
on everything from redesigning jet-wing parts to
designing components for the International Space
Station. Recently, Boeing expanded its largest
design-engineering base, headquartered in Moscow,
with more than 1,000 aerospace engineers and
designers designing and working to create the
critical parts and sections of the next generation
of Boeing aircraft - the Boeing 787 Dreamliner.
The plane will be delivered by early next year.
Infrastructure The significance
of infrastructure to Indian growth cannot be
overstated. To be sure, utilities and
infrastructure provide vital inputs to any modern
industrial economy. Recent estimates suggest that
India would need to raise $350 billion for
infrastructure development. The sectors include
electricity, railroads, roads, seaports, airports
and water supply.
Given the notorious
status of India's federal and provincial
governments' fiscal balances, which still absorb
the bulk of household savings, it is almost
certain that a sizable portion of the envisaged
investment will come from external sources. It is
here that Russia can assist India both in terms of
foreign direct investment (FDI) and cost-effective
technology transfers. Russia's reserve assets of
$400 billion can be envisaged in part as a massive
investment fund that will eventually be deployed
in overseas assets.
The railroad sector,
with government plans for a $14 billion east-west
freight corridor, offers immediate potential.
India could draw in Russian companies in a manner
akin to recent Brazilian initiatives to invite
Russia to take part in a transcontinental railroad
project. The onus is on New Delhi to raise
Russia's current share in the total stock of FDI
into India from the abysmal
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