By: Khushbu Ahlawat, Consulting Editor, GSDN
Introduction
The trajectory of India–Russia economic relations since 2022 reflects a paradox of expansion and imbalance. Bilateral trade has surged to unprecedented levels, reaching US$68.7 billion in FY2024–25, more than doubling the earlier target of US$30 billion. This dramatic rise is overwhelmingly driven by India’s import of discounted Russian crude oil, which constitutes nearly 80 percent of total trade, underscoring a structurally skewed partnership. While this surge demonstrates resilience amid Western sanctions, it simultaneously exposes vulnerabilities rooted in overdependence on a single commodity.
To mitigate the impact of sanctions imposed by the United States, European Union, and G7 countries, both nations have adopted innovative financial mechanisms. The rupee–ruble settlement system, introduced by the Reserve Bank of India in 2022, now accounts for over 90 percent of bilateral transactions, significantly reducing reliance on Western financial systems. Complementing this, logistical initiatives such as the Vladivostok–Chennai maritime corridor and the International North–South Transport Corridor (INSTC) have enhanced connectivity and trade facilitation.
However, the structural imbalance remains stark. India’s exports to Russia have grown only modestly—from US$3.1 billion in FY2022–23 to US$4.9 billion in FY2024–25—highlighting persistent asymmetry. This imbalance is compounded by regulatory barriers, limited market knowledge, and risk-averse private sector participation. Thus, while trade expansion signals opportunity, it also necessitates diversification and deeper structural reforms.
Sanctions, Slowdowns, and the Limits of Trade Expansion
Despite impressive growth, India–Russia trade is showing signs of stagnation. By late 2025, Russian President Vladimir Putin acknowledged that trade volumes had plateaued, indicating a potential ceiling in current dynamics. Western sanctions have played a decisive role in constraining further expansion, particularly in non-energy sectors. A notable example is the collapse of Russia’s diamond exports to India, which fell sharply from US$1.4 billion to US$400 million following the 2024 G7 and EU ban on Russian-origin diamonds. This has disrupted India’s diamond processing industry, traditionally reliant on Russian raw materials. Similarly, sanctions targeting Russian oil companies and tanker fleets in 2025 have complicated energy shipments, forcing Indian refiners to recalibrate sourcing strategies. Moreover, the persistence of a one-sided trade structure remains a fundamental constraint. India’s inability to match Russia’s export scale—particularly in energy—limits the scope for balanced growth. Non-tariff barriers, logistical inefficiencies, and compliance risks further deter Indian exporters. While sectors such as electronics and pharmaceuticals have shown incremental growth, these gains remain insufficient to offset the broader imbalance.
Thus, the current phase of India–Russia trade reflects not just external pressures but also internal structural limitations, necessitating a shift from volume-driven growth to value-based diversification.
Investment Cooperation: From Energy Dominance to Sectoral Diversification
Investment cooperation between India and Russia has evolved beyond traditional sectors, though energy continues to dominate. The landmark acquisition of Essar Oil by Russian energy giant Rosneft for US$12.9 billion remains the largest single Russian investment in India. Operating under Nayara Energy, the company has expanded to over 6,750 fuel stations, reinforcing Russia’s deep footprint in India’s downstream energy sector.
In the nuclear domain, Russia’s state corporation Rosatom has played a pivotal role in constructing the Kudankulam Nuclear Power Plant, with Units I and II operational since 2014 and 2016. The project exemplifies long-term strategic cooperation, supported by concessional financing and technology transfer. Beyond energy, diversification is evident across metallurgy, chemicals, and manufacturing. Russian aluminium giant Rusal’s US$244 million investment in an Indian alumina refinery and the establishment of KuibyshevAzot’s engineering plastics plant in Andhra Pradesh signal growing industrial collaboration. Similarly, Russian firm NLMK’s investment in transformer steel production highlights integration into India’s manufacturing ecosystem.
An equally significant yet evolving pillar of India–Russia economic engagement lies in the digital economy and fintech cooperation, which is gradually reshaping the architecture of bilateral transactions. As Western financial systems remain partially inaccessible to Russian institutions, both countries have accelerated efforts to build alternative payment ecosystems and digital financial linkages. The expansion of Russia’s SPFS (System for Transfer of Financial Messages) and its potential interoperability with India’s domestic financial messaging systems reflects a broader push to bypass SWIFT-dependent channels. Simultaneously, India’s globally recognised Unified Payments Interface (UPI) has emerged as a model for scalable, low-cost digital payments, opening avenues for cross-border integration. In 2025, discussions around mutual acceptance of payment cards and digital settlement mechanisms gained traction, signalling a move toward deeper financial interoperability. Moreover, Russian banks such as Sberbank establishing IT hubs in Bengaluru highlight a shift toward embedding themselves within India’s digital innovation ecosystem. This convergence is further reinforced by India’s rapid fintech expansion—projected to reach US$150 billion in market size by 2025—making it an attractive destination for Russian capital seeking diversification. Importantly, such collaboration is not merely transactional but strategic, as it enables both nations to co-develop sanctions-resilient financial infrastructures, enhance cybersecurity cooperation, and reduce systemic dependence on Western-controlled platforms. Over time, this digital-financial synergy could serve as a cornerstone for a parallel geoeconomic architecture, aligning with the broader ambitions of a multipolar global financial order.
In the railways sector, the Transmashholding–RVNL joint venture represents a transformative partnership. With a contract worth US$6.5 billion, it includes the production of 120 Vande Bharat sleeper trains and long-term maintenance commitments, embedding Russian expertise into India’s infrastructure modernization.
An additional and increasingly important vector of India–Russia economic cooperation lies in the defence-industrial and technological partnership, which continues to anchor bilateral ties even amid shifting geopolitical realities. Historically, Russia has been India’s largest defence supplier, accounting for nearly 60–70 percent of India’s military inventory over the past decades. Although this share has gradually declined due to India’s diversification strategy, recent developments indicate a transition from a buyer–seller dynamic to joint production and technology co-development. The BrahMos supersonic cruise missile programme, a flagship Indo-Russian joint venture, has gained renewed momentum, particularly after India’s efforts to expand its export footprint to Southeast Asia. Additionally, agreements on the licensed production of AK-203 assault rifles in Uttar Pradesh and ongoing cooperation in areas such as air defence systems and nuclear submarines reflect deepening industrial linkages. In 2025, both countries reiterated commitments to defence indigenisation under India’s “Make in India” initiative, emphasising local manufacturing and technology transfer. This shift aligns with India’s broader goal of reducing import dependency while retaining strategic autonomy. Furthermore, in the context of Western sanctions on Russia, defence cooperation has acquired a new dimension, with India emerging as a reliable partner for sustaining Russia’s defence exports and industrial base. However, challenges such as payment delays, sanctions risks, and technology-sharing limitations persist. Strengthening this partnership through co-innovation, joint R&D, and export-oriented production could transform defence ties into a cornerstone of long-term strategic and economic cooperation.
A critical yet underexplored dimension of India–Russia economic engagement is the growing strategic alignment in critical minerals and supply chain security, which has gained urgency in the post-2024 global economic landscape. As countries increasingly weaponise resource access, India has intensified efforts to secure inputs essential for energy transition technologies such as lithium, cobalt, and rare earth elements. Russia, possessing vast reserves of nickel, cobalt, and rare earths, has emerged as a potential long-term partner in this domain. In 2024–25, bilateral discussions explicitly focused on technology transfer and joint exploration in mining, culminating in the inclusion of cooperation on mining technologies in the August 2025 protocol on industrial modernisation. This aligns with India’s broader strategy of reducing dependence on China-dominated supply chains, particularly in electric vehicle batteries and renewable energy infrastructure. Simultaneously, global disruptions—exacerbated by the Ukraine conflict and export restrictions by multiple countries—have intensified competition over mineral access, with over 200 export restrictions recorded globally since 2018. Russia’s pivot towards Asian markets, including India, thus reflects both necessity and opportunity. Furthermore, India’s policy push through initiatives like the Critical Minerals Mission (2025) and Production-Linked Incentive (PLI) schemes enhances its attractiveness for Russian investment in downstream processing and value addition. If effectively operationalised, this cooperation could move the bilateral partnership beyond hydrocarbons towards a future-oriented geoeconomic axis, embedding resilience, technological collaboration, and strategic autonomy into India–Russia relations.
These developments indicate a gradual shift from resource-centric engagement to diversified industrial cooperation, though the scale of investment remains modest relative to potential. Another crucial dimension shaping India–Russia economic relations is the evolving connectivity and logistics architecture, which is central to sustaining long-term trade and investment flows. The operationalisation of the International North–South Transport Corridor (INSTC)—a 7,200-km multimodal network linking India, Iran, Russia, and Central Asia—has emerged as a strategic alternative to traditional routes like the Suez Canal. Recent pilot shipments have demonstrated that the INSTC can reduce transit time by 30–40 percent and lower freight costs by nearly 20 percent, significantly enhancing trade efficiency. Parallelly, the Vladivostok–Chennai maritime corridor, first proposed in 2019, has gained renewed momentum post-2022, offering a direct sea route that cuts shipping time from over 40 days to approximately 24 days. In 2025, both countries also intensified cooperation on the Eastern Maritime Corridor, integrating port infrastructure and boosting energy transportation. Furthermore, Russia’s interest in expanding the Northern Sea Route (NSR), coupled with discussions on joint shipbuilding and ice-class vessel development with India, highlights the Arctic’s growing relevance in bilateral cooperation. These developments are not merely logistical but deeply strategic, as they enable both nations to bypass chokepoints and mitigate geopolitical risks associated with Western-controlled trade routes. However, challenges such as infrastructural gaps in Iran, regulatory inconsistencies, and limited private sector participation continue to constrain full operational efficiency. Strengthening these corridors through coordinated investments and policy harmonisation will be essential to unlocking the next phase of India–Russia economic integration.
Financial Integration and the Rise of Alternative Investment Channels
A defining feature of post-2022 economic engagement is the deepening of financial integration. Russian banks such as Sberbank and VTB have expanded their presence in India, facilitating trade settlements and investment flows. The introduction of Special Rupee Vostro Accounts (SRVAs) has enabled Russian firms to channel surplus rupees into Indian government securities and financial markets.
Portfolio investments have emerged as a significant avenue, exceeding US$2 billion in 2024. Russian investors increasingly view India as a “safe harbour,” driven by its economic stability and growth prospects. The launch of a mutual fund linked to the Nifty 50 index further institutionalizes financial connectivity, allowing Russian retail investors exposure to India’s top companies. In the startup ecosystem, Russian-origin funds such as RTP Global and Sistema Asia Capital have invested in sectors ranging from fintech to food delivery. While some of these entities have distanced themselves from Russia post-Ukraine conflict, their continued engagement underscores India’s attractiveness as an innovation hub. This financial convergence reflects a broader reorientation of Russian capital towards the Global South, with India emerging as a central node in this transition.
Persistent Bottlenecks: Structural and Institutional Constraints
Despite progress, several structural challenges hinder the full realization of investment potential. The absence of a Bilateral Investment Treaty (BIT) since 2017 leaves investors without robust legal protection, increasing uncertainty. Although negotiations resumed in 2024, a final agreement remains elusive. Currency-related challenges persist within the rupee–ruble framework. Dependence on third-country exchange rates, restrictions on rupee repatriation, and forex volatility complicate transactions. Additionally, India’s cautious regulatory approach—reflected in Russia’s high-risk rating by export credit agencies—limits deeper financial integration. Infrastructure and logistical gaps further constrain trade expansion. While corridors like INSTC offer promise, their operational efficiency remains inconsistent. Moreover, Indian private sector reluctance to engage with Russia, driven by sanctions risk and market unfamiliarity, continues to impede diversification. Addressing these bottlenecks requires coordinated policy reforms, enhanced institutional frameworks, and greater private sector participation.
Conclusion
The evolution of India–Russia economic relations in the post-2022 era reflects a complex interplay of geopolitics, economic pragmatism, and strategic necessity. While sanctions have disrupted traditional pathways, they have also catalyzed innovation in financial mechanisms, logistics, and investment strategies. India’s emergence as a key destination for Russian capital underscores its growing importance in the Global South. For Russia, India offers not only a large and dynamic market but also a gateway to alternative economic networks beyond the West. For India, engagement with Russia ensures energy security, technological collaboration, and strategic autonomy.
However, the sustainability of this partnership will depend on addressing structural imbalances, diversifying trade, and strengthening institutional frameworks. Moving forward, the focus must shift from transactional engagement to long-term strategic integration, encompassing emerging sectors such as critical minerals, digital economy, and green energy. In an increasingly fragmented global order, the India–Russia partnership stands as a testament to adaptive resilience. Its future trajectory will not merely shape bilateral ties but also influence the contours of a multipolar economic system in the decades to come.
About the Author
Khushbu Ahlawat is a research analyst with a strong academic background in International Relations and Political Science. She has undertaken research projects at Jawaharlal Nehru University, contributing to analytical work on international and regional security issues. Alongside her research experience, she has professional exposure to Human Resources, with involvement in talent acquisition and organizational operations. She holds a Master’s degree in International Relations from Christ University, Bangalore, and a Bachelor’s degree in Political Science from the University of Delhi.
