Specifics and miracles of the Indian economic model
The Third Way
Popular wisdom says: “If you are offered a choice of two options, always choose the third.” When choosing between the West and the East, Russia periodically chooses a third path - to the South.
If the movement in the southern direction in the XNUMXth–XNUMXth centuries was constant, conditioned by completely objective reasons and prerequisites, then later this direction was addressed cyclically - interest either arose or waned. In general, the movement to the South became associated with a hypothetical route to India, the North-South geopolitical axis, the North-South trade route, etc.
Emperor Paul I was planning to go on a campaign to India; they thought about building a “southern route” during the Russian-Persian wars; at the beginning of the XNUMXth century, they tried to build Kurdish and Azerbaijani projects in the USSR.
With India itself, the USSR had close trade relations and close political and military-technical cooperation. After the collapse of the USSR, attempts were made to master this direction only within the author’s memory five times. Concepts were developed, the most popular of which was V. Zhirinovsky’s monograph “The Last Throw to the South,” which, by the way, is thirty years old.
We approached the move to the south more or less systematically when developing the North-South multimodal transport corridor (MTC). But even then they didn’t come right away, but around 2013–2015. But, in general, the idea of MTK is also quite old - it is already twenty-three years old.
There were four projects within the framework of the MTC concept, and there were even more subprojects that represented the development of the MTC in various areas. MTK, in theory, was supposed to start in Murmansk and finish in Mumbai, India. If everything that was drawn up over the past years is printed out on paper, then, most likely, the volume of project documentation, justifications, maps, details, estimates, etc. can hardly fit into a freight car.
However, the fact remains that until 2020, our trade turnover with India averaged 7 billion dollars, with Iran - about 1 billion. Since 2021, there has been an increase - with India up to 15 billion, with Iran - 2 billion. This year is breaking records - with India we reach 30 billion dollars, with Iran we are approaching 4 billion.
It would seem that the numbers sound quite encouraging, especially if you look at the growth rate. However, everyone understands that the growth is ensured not by the international transport complex, which is just being built, or even by trade in resources, but by a set of specific schemes, where India hosts only part of the raw materials, and the other part replaces supplies to Europe.
With all the thunder and lightning that representatives of the European Union or representatives of the US administration throw about in the media, in reality they turn a blind eye to such supplies. But this is part of the pragmatic commercial hypocrisy, which is perceived by all sides as situational twists. Russia is not going to give up export earnings, and Europe will take these turns, developing, in turn, schemes to replace domestic raw materials.
That is, we have a tactical increase in turnover in the southern direction, and this tactical increase also has certain limits. In general, they have essentially already been achieved - commodity turnover with India is no longer growing. But the North-South trade axis and projects within the framework of the ITC concept still do not imply the current sanction replacement schemes, but commodity and raw materials, and in the future, predominantly commodity ones. And this is where certain difficulties arise.
On the one hand, everyone understands that the markets of Iran, Pakistan and India with its 1,42 billion population cannot a priori be “unpromising”, and transport corridors must be built.
On the other hand, there are practically no realistic estimates of foreign trade in this area. Most of the time we are talking about hypothetical hundreds of billions of dollars. At the same time, the harsh reality does not compete with these indicators at all. And, in theory, it should, at least simply in terms of market volume, but it doesn’t beat.
How is India's trade cooperation structured?
Let’s look at how India’s trade cooperation is structured, why it is what it is, and try to assess the prospects, taking into account not only domestic ideas, but also the concepts with which the United States is entering the region. And the United States is persistently going there.
In a recent article in The Washington Post, J. Biden devoted as much as 20% of the total content to this area. The project "includes the idea of an innovative economic corridor that will connect India with Europe through the United Arab Emirates, Saudi Arabia, Jordan and Israel." The American even complained: “I believe that the attempt to destroy hope for this future is one of the reasons why the Hamas provoked this crisis.” But this corridor is only the visible part of the iceberg for the development of India by the United States and the formation of the Indo-Arabian economic bloc, just a part with a good media perspective, but there are also deeper layers.
That is, competition for the region between domestic and American projects is obvious. However, India's foreign trade is a rather specific phenomenon, since it is distinguished at first glance by a very high degree of diversification. And it also has its own vectors, by looking at which you can understand why the United States is so concerned about this region, why both it (the United States) and we (Russia) should think hard about the possibilities of practical implementation of the concepts.
The general parameters of India's foreign trade are described by the following indicators.
American value cluster: USA – $0,129 trillion (10,8%), Canada and Mexico – $0,058 trillion (4,7%). Europe as a total value area, including Britain, Switzerland, Norway, the Balkans and Turkey - $0,196 trillion or 16,6%. China – 0,117 trillion or 9,9%. Southeast Asia - 0,295 trillion or 25%, the entire Middle East - 0,225 trillion (19%) and Russia - $30 billion or 2,5%.
It would seem that there is nothing unique. China and Southeast Asia - 35%, the conditionally “collective West” with its 32% of industrial turnover and Russia plus the Middle East with 22% of raw materials turnover. That is, India is balancing between two global sectors. In some ways it formally resembles Russia and Central Asia, which are also stretched between East and West. However, there are nuances, and the devil, as we know, is in the details.
The fact is that India, among five dozen major countries, has the lowest weight of foreign trade turnover in the economy. The author does not favor the GDP indicator, but even if we take it, then India’s 8% of foreign trade to GDP is one of the lowest in the world. For a state with a population of 1,42 billion people, foreign trade of $1,184 trillion looks quite unusual. Let's note this and look at a few more parameters.
For example, on the parameters of exports (460 billion) and imports (735 billion). Formally, India has a serious trade deficit of $275 billion. For a country that does not have access to the world's printing press or is not included in the pool of countries that can rely on this press at will, such a shortage is, in theory, a disaster. Turkey, with its $100 billion deficit, organizes annual raids to attract dollars into the country, but has anyone heard of such treasure trips from New Delhi?
But after all story akin to a detective story, where importers take funds to pay suppliers, if the influx of foreign currency into the country is not ensured by exporters, this is a 60% deficit.
One of the backbone industries of India is the sphere of diamonds, precious stones and pearls. This is more than 10% of foreign trade turnover per year. And again the structure is similar: 39 billion – exports, 78 billion – imports. It is clear that some of the “beauty” should be left for the domestic market, but still. Here is the most important commodity item - diamonds: imports for 27 billion, exports for 23 billion.
Another systemic industry is petrochemistry and oil refining. Export of crude oil, bitumen and fuel oil for 94 billion, import for 170 billion. It is also interesting that the structure is similar for high value-added products.
We still need to look for a similar structure at the state level in the world, since you can work like this for a year or two, but not for years, because outwardly we have a trade “pyramid in reverse”, when in a critical situation a trade organization collects commodity loans, but cannot cover it with revenue from implementation. But in this case we are faced with something different. And you can understand what it is by looking not at the usual trade balance for a calendar year, but at the balance of payments broken down over a couple of years.
And India’s balance of payments jumps like a negative sine wave from deep minus to zero almost every quarter, plus or minus a month. For the calendar year, it, like foreign trade, is negative; if you look at the period, the negative value is quite modest - about $25 billion.
Miracles are understandable, another thing is that the peculiarity of these Indian miracles should give pause to those who expect that the Indian domestic market for the same hydrocarbons is something large and bottomless, something that can easily replace the markets of the same EU.
The fact is that large Indian businesses are integrated into the structures of TNCs much more than even Chinese businesses; moreover, large Indian companies are themselves TNCs. Import of even national TNCs to India is part of rather complex schemes for resale or primary processing before sale to their own structures in various regions.
Model: purchase, modification, resale
Accordingly, analogues of commodity loans are not a pyramid, but part of one large production and trade chain. Whatever product item we take on, perhaps except for rice and sugar, we are faced with the same model everywhere: purchase, processing, resale. Even the import of Western finished products is based on the fact that they also contain a creditable part of such foreign trade turnover.
In general, in Russia there is still an attitude towards India as “big Bollywood”. But take the structure of an Indian MNC like Tata. There is not enough ream of paper to contain not just sales branches, but assets where Tata is directly and indirectly involved in production and logistics: from Spain to Thailand and from Brazil to Canada. In general, Indian industry is not national, but international. Oddly enough, in this it is radically different from the Chinese model, although the opposite image has formed (and firmly) in our heads.
Why didn't China agree to a similar scheme of work? You can debate as much as you like about whether China is “socialist” and to what extent, but the price of such a model is the extremely low standard of living of the population. China, on the other hand, was building, and purposefully, a middle-income society.
In one country (we won’t say which one) they decided to build an airplane, and in India they decided to build an airplane. Both countries created the device from 50% imported parts, only in one country (we won’t say which one) it was pure import of parts, and in India it was imported from an enterprise abroad, where Indians have a share. Hence the kind of “offsets” and analogues of trade loans, and miracles with the balance of payments.
And a colossal disadvantage for Indian industry is that all domestic production is a complete and monstrous conflict of interests, and the conflict is essentially eternal. Indian industry is like mushroom mycelium, which is assembled by Lego from parts that it itself produces at partially its own enterprises from the North Pole to the South Pole.
In this regard, attempts to create something “independent” even in such industries as the military-industrial complex turn out not just to be a long-term construction project, but to an unsolvable long-term construction project. If China has created two industrial circuits: internal and external, then India has, in fact, one and is focused on working with its own industrial assets outside the country. But, unlike China, India is unable to create a holding company where it can fully use international cooperation to export.
Do you want to saturate the Indian market with motor vehicles, and with what kind should you saturate it: from a Spanish plant, an Argentinean one, a Korean one? The most logical thing to do is from India, but what to do with the assets listed above? From there either finished products or spare parts should come from there. But then why produce it yourself.
That is, all industries are aimed at either resale or cross-transactions. And the oil sector, on which we placed a rather large bet in relation to India, is no different in this regard from everything else. As soon as the reserve for resale and cross-sale schemes ended, questions began with rupees, calculations and general difficulties. Part of our exports also fell into these miracles of mutual resale and sinusoidal payments in increments of three to five months. But overall it was somewhat predictable, it just required being realistic about the volumes that the Indian model can handle and being realistic about the turnover time.
The Indian market is formally huge, but in order to take any share in it, the country requires Indians to distribute their model to the supplier. Roughly speaking, to sell peas to India, it is required that the Indians build their own elevator to purchase, sort, store and ship peas. Otherwise, all schemes will be temporary, deliveries will not be systemic, etc.
That is, it is necessary to give India part of its own market, along with part of the pricing chains. Only, unlike working with former investors from Germany, the profit center will not be in the supplier’s country.
In this regard, India has a unique position in its own way. With all the external attractiveness of the domestic market, with all the fluctuations in the world economy in terms of clustering into the “western” and “eastern” parts, India has been and will be not just one of the most diversified economies, but also one of the most complex and closed to trade unions. At the same time, N. Modi’s government understands that this does not significantly improve the standard of living of the masses of the population and creates difficulties with investment, but it is very difficult to fundamentally change the model. But at the same time, the industrial and financial elite in India are still integrated into European, Japanese and American finance.
Hence the bigger question arises, if in the supply of natural gas or assistance in the construction of nuclear power plants, supplies of weapons and armory India needs technology, then the prospects for billions of dollars in turnover from the North Pole to hot Mumbai seem very, very vague. And this is not a problem of Russia, Iran, even China or the United States, but of the Indian economic model itself, which itself cannot effectively use the opportunities of the domestic market.
In this regard, the American idea of creating an economic unification of India and the countries of the Middle East also faces the described problems, but the nuance is that the United States proposes financing the deficit “in advance” and not so much industrial as technological cooperation. The Arabian monarchies and especially Saudi Arabia have a strategic goal of a breakthrough in high-tech industries, and here the United States will try to create something like Greater Taiwan.
Will they be able to create conditions under which the relative excess of investment and working capital will encourage India to change its economic model? Possible, although not obvious. But if they manage, with the help of Arabian finance and raw materials, and their technologies, to freeze trade integration with Southeast Asia, which is already largely focused on the Chinese development model, then, apparently, this will already be a kind of geopolitical gain.
For Russia
For Russia, perhaps the most important thing is to understand the limits of working with India's specific economic model.
Should we build roads to the South? Build, but with the markets of Iran and only optionally India in mind.
Should we supply large volumes of raw materials? Deliver, but understand that there is a limit on resale, etc.
But in terms of non-raw material turnover, this is unlikely to reach a realistic 15–20 billion dollars. You can export gas to India with Iran, you can build nuclear power plants, and more than one, and in general, if possible, maintain and increase political and cultural ties, work on platforms like the SCO and BRICS, but count on the Indian markets as a kind of “King Solomon’s mines.” “It’s definitely not worth it for a long time.
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