Population (2019): 144,373,535
GDP (2019): US$ 1.69 trillion
World Bank “Ease of Doing Business” Rank (2018): 28
Bilateral Trade with India (2018-19): US$ 10.1 billion
Russia is one of the world’s largest economies and has the highest per capita GDP among the BRIC economies (Brazil, Russia, India and China) at US$ 27,800 (PPP) in 2017.
Russia’s economy is now stable and growing, after emerging from a two-year recession triggered by falling oil prices and economic sanctions. Its economic growth is moderate at around 1.7% in 2017, and the World Bank estimates it to remain in the range of 1.5-1.9% from 2018 to 2019. Due to recent reforms, it is now easier to do business in Russia.
Growing Consumer Spending
Russia is one of the world’s leading producers of oil and natural gas and has traditionally relied on commodity trade for growth.
Much has changed in the business landscape since the commodity slump and the impact of economic sanctions. With a growing middle class and private sector, consumer spending is expected to drive its GDP growth in the coming years. Its consumer market continues to grow at a rate exceeding that of most mature markets.
The Russian market, especially in Moscow and St. Petersburg, is vibrant and business is growing. Russian consumers are discerning, cost-conscious, but also loyal. Indian companies are well-placed to offer goods and services at high standards, and at business-friendly costs to meet increasing local demand.
Springboard to Eurasian Markets
Russia has close economic links with Central Asia, which you can leverage to access markets in the region. Russia is a member of the Eurasian Economic Union, which includes Kazakhstan, Kyrgyzstan, Armenia and Belarus. This is a single economic market of over 183 million people with a GDP of over US$ 4 trillion (PPP). Member countries enjoy free transit of goods, services, capital and workers among themselves. Setting up your business in Russia thus gives you an ideal base to expand into Central Asia and Eastern Europe.
Russia’s consumer retail landscape is changing post-recession. A stabilised ruble and favourable global commodity prices have boosted retail sales (reaching over 33 trillion Russian rubles in 2019), growth in nominal wages (4.5% average increase) and fall in unemployment (about 5% decrease).
A niche consumer market is forming in Russia following a shift towards value-seeking consumer behaviour. Domestically produced goods are gaining market share due to imports becoming more expensive. Consumer spending is increasing but its consumers are becoming more savvy and sensitive to price and quality, following the rouble devaluation in 2014.
Companies in the consumer sector – be it food, fashion or consumer electronics, can find substantial opportunities in the huge Russian market of 142 million people. Russians favour European-quality products with high perceived value, at low prices. Aligning your products and pricing strategy to fit this mindset will enable you to do well in Russian markets.
It also pays to know the taste and preferences of local consumers. If you are in food services, understand that Southeast Asian food is generally not part of Russian gastronomy. Therefore, more marketing is needed to drive sales in Russia. There is also a perception of Southeast Asian foods as low in price. You can offer unique and higher perceived value products at attractive price points to capture the market.
In addition, e-commerce is changing Russian consumer behaviour and creating new business opportunities. Russian e-commerce market is expected to grow at an annual rate of 6.1% (CAGR 2020-2025). As a result the market volume is projected to reach US$ 31,809 million by 2025.
Your company can consider using online platforms to market and service Russian consumers, who are taking to the digital sphere to fulfill their shopping needs – from checking prices to buying.
Russia has strong science and technology capabilities and an established research and innovation culture. Due to economic sanctions which prohibited the transfer of technology to Russian firms, Russia is resolved to find its own made-in-Russia solutions in defence technology and high-tech civilian products. It has plans to eventually export its technology products too.
Russia funded the Skolkovo Foundation to establish the Skolkovo Innovation Centre in the suburbs of Moscow in 2010. Billed as the “Russian Silicon Valley”, the 400-hectare science city “built from scratch” houses 21,000 permanent residents and an equal number of commuting employees today.
Research and enterprise development in Skolkovo Innovation Centre focuses on five areas: energy efficiency and conservation, information technologies, developing equipment and pharmaceuticals in biomedical technologies, nuclear technology, and space technology. The centre expects to be self-funded by 2025, and estimates that it will contribute 213 billion rubles to the Russian economy by 2020.
Indian startups can collaborate with Russian partners to co-create innovative tech solutions and products, especially in consumer business technologies, e-commerce, digital services. India can also serve as a base for Russian technology firms and startups to venture to Asia.
Today, infocomm technology is transforming daily living in Russia, similar to trends in other parts of the world. For example, Russian e-commerce market is expected to grow at an annual rate of 6.1% (CAGR 2020-2025). As a result the market volume is projected to reach US$ 31,809 million by 2025.
To establish your business in the Russian market, consider using an e-commerce platform to build up your brand and service the increasing tech savvy and value-seeking Russian consumer. There is also opportunity for e-commerce enablers including warehousing services, fulfilment services, and CRM systems, which Indian specialists can provide. Find out how your business can meet the growing consumer demand in Russia.
Intensifying the trade and economic relations has been identified as a priority by both countries. In December 2014, the leaders of the two countries set a target of US$ 30 billion bilateral trade by 2025. Russian investments in India in 2017 has reached US$ 18 bn and India’s total investment in Russia so far is US$ 13 bn. The overall investment target of US$ 30 bn that was set for 2025 has already been reached. The investment target has been raised from US$ 30 bn to US$ 50 bn by 2025 during the 19th Annual Bilateral Summit in October 2018.
The Russian Ministry of Economic Development has launched ‘Single window Service’ in October 2018 to facilitate hassle-free investment by Indian companies which will help achieve mutual trade and investment target. Some of the key priority sectors identified for focused interaction include hydrocarbons, pharmaceuticals, mining, fertilizers, heavy engineering, gems & jewelry, chemicals, fertilizers and agriculture & food processing industry.
In 2019-20, bilateral trade was US$ 10.10 billion, a 22.8% increase over 2018-19. It includes Russian exports to India amounting to US$ 7.1 billion and Indian exports to Russia amounting US$ 3 billion (Source: Ministry of Commerce). In 2019, India’s share in Russia’s global trade of US$ 584.1 billion was 1.6%. Also, India’s share in Russia’s total export and total import worldwide were 1.7% and 1.3% respectively.
Trade in Services:
Bilateral trade in services has remained stable during the last 5 years with trade balance in Russia’s favour. While in 2017, trade in services was USD 1095.4 million, it reduced slightly in 2018 to USD 999 million. The figure stands at USD 633.68 million for the period (January – June), 2019.
Top exports include electrical machinery and equipments, pharmaceutical products, machinery, mechanical appliances, organic chemicals, coffee, tea, mate and spices, iron and steel, vehicles, edible preparations and chemical products.
|Product Code||Product Label||India’s exports to Russian Federation in 2019 (value in US$ million)|
|’85||Electrical machinery and equipment and parts thereof; sound recorders and reproducers, television …||542.8|
|’84||Machinery, mechanical appliances, nuclear reactors, boilers; parts thereof||232.6|
|’09||Coffee, tea, maté and spices||118.3|
|’72||Iron and steel||105.7|
|’87||Vehicles other than railway or tramway rolling stock, and parts and accessories thereof||102.4|
|’21||Miscellaneous edible preparations||63.7|
|’38||Miscellaneous chemical products||62|
Source: ITC Trade Map
According to ITC Trade Map, The products with greatest export potential from India to Russian Federation are Medicaments consisting of mixed or unmixed products, for retail sale, Motor vehicles for the transport of persons, nes, and Black tea, packings >3kg. Motor vehicles for the transport of persons, nes shows the largest absolute difference between potential and actual exports in value terms, leaving room to realize additional exports worth $215.6 m
|Product code||Description||Export potential|
|3004Xb||Medicaments consisting of mixed or unmixed products, for retail sale||US$ 345.9 million|
|8703XX||Motor vehicles for the transport of persons, nes||US$ 215.7 million|
|090240||Black tea, packings >3kg||US$ 137 million|
|6403XX||Footwear, rubber/plastic soles & leather uppers, nes||US$ 104 million|
|020230||Bovine cuts boneless, frozen||US$ 92.3 million|
|281820||Aluminium oxide, n.e.s||US$ 82.7 million|
|0306Xb||Shrimps & prawns, frozen||US$ 82.1 million|
|8708XX||Parts & accessories of motor vehicles, nes||US$ 37.6 million|
|3808||Insecticides, rodenticides, fungicides, herbicides & similar||US$ 70.1 million|
Source: ITC Trade Map
Mineral fuels, pearls, metals, fertilizers, paper, plastics, rubber, inorganic chemicals, salt & sulphur were the main items of import by India in 2019.
|Product Code||Product Label||India’s imports from Russian Federation in 2019 (Value in US$ million)|
|’27||Mineral fuels, mineral oils and products of their distillation; bituminous substances; mineral …||2,872.9|
|’71||Natural or cultured pearls, precious or semi-precious stones, precious metals, metals clad …||642.9|
|’99||Commodities not elsewhere specified||436.4|
|’48||Paper and paperboard; articles of paper pulp, of paper or of paperboard||273.3|
|’39||Plastics and articles thereof||175.5|
|’15||Animal or vegetable fats and oils and their cleavage products; prepared edible fats; animal||157.5|
|’25||Salt; sulphur; earths and stone; plastering materials, lime and cement||149.4|
|‘72||Iron and steel||148.4|
Source: ITC Trade Map
Office of the Embassy of India
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