Business Economics & Services Team (BEST)
Will the Ukraine Embargo on Russia help India?
Next week, Russian strongman Vladmir Putin is visiting India. Scheduled immediately before the visit of President Obama, the grapevine in the diplomatic circles was it was a part of appeasement policy followed by India to gravitate towards both countries to fulfill its long term trade objectives. That is true to a very great extent. But the Ukraine spin might not have occurred to many. Russia is facing flak from the US and EU for its intervention in the Ukraine and the efforts to destabilize its democratically elected government. The US and EU had retaliated by imposing economic sanctions on Russia, which appears to be emaciating its economic girth. Oil exports from Russia has dropped considerably at a time when the prices of the liquid gold is poised to register a record low. This is a double whammy for Russia.
The other blow comes from its predominant position as an exporter of rough diamond. Twenty-nine of the world's output of rough diamonds are mined in Russia. There has been concentration of diamond trade in hubs like Antwerp, Belgium, Dubai and Hong Kong. Most of the world's production of rough diamonds-roughly 85%- are imported into India for cutting and polishing and are being re-exported to various destinations. With possibility of sanctions extending to an indefinite period looming large, Russia is looking for alternate strategies for roughing up the onslaught. One approach is to make India a trading hub in the same way as they do it in European countries.
There is a lot of merit in Russian thinking since it will cut down the killing made by the middle men sitting in European centers. It is a known fact a large number of diamond traders in these centers are Indians or people of Indian origin. By value adding diamonds in India and re-exporting them to various destinations they avail a number of facilities. On the top of it, the skilled and cheap labor in India add to their profit.
Importantly, both Putin and Prime Minister Narendra Modi are attending the World Diamond Conference, which will be held in Delhi next week.At the meeting Alrosa, a group of Russian companies engaged in diamond trade is expected to enter into long term contracts with Indian traders. If the deals go through, India will be able to import directly diamonds from Russia, without the medium of middlemen. That will cut the cost of imports considerably. In the long run, this development will have greater ramifications for the diamond trade. The Indian or people of Indian origin middlemen will migrate from European centers to India and set up their businesses from Indian shore denying these countries the revenue they earned from diamond trade. Second, India will gradually export the diamonds to the end destinations bringing up a lot of foreign exchange resources into India.
But these are propositions easier said than done. Some of the world's known companies in diamonds like De Beers, Rio Tinto etc. have a vested interest in diamond trade. They have established trade routes, which will be impossible to penetrate. In their scheme of things, Europe can be the trading route and India can be the traditional hub for low end cutting and polishing. They are supposed to put a lot of pressure on Putin administration and the western countries not to bring diamonds into the sanction's purview.
The other eventuality is the length of sanction period itself. Steadily declining oil prices is casting a shadow on oil producing non - OPEC countries like Venezuela, Iran, Iraq etc. along with Russia. How long the Russian Federation will withstand the onslaught is a trillion dollar question. Once the sanctions are lifted, the trade route will be restored.
Will the Ukraine Embargo on Russia help India?
Next week, Russian strongman Vladmir Putin is visiting India. Scheduled immediately before the visit of President Obama, the grapevine in the diplomatic circles was it was a part of appeasement policy followed by India to gravitate towards both countries to fulfill its long term trade objectives. That is true to a very great extent. But the Ukraine spin might not have occurred to many. Russia is facing flak from the US and EU for its intervention in the Ukraine and the efforts to destabilize its democratically elected government. The US and EU had retaliated by imposing economic sanctions on Russia, which appears to be emaciating its economic girth. Oil exports from Russia has dropped considerably at a time when the prices of the liquid gold is poised to register a record low. This is a double whammy for Russia.
The other blow comes from its predominant position as an exporter of rough diamond. Twenty-nine of the world's output of rough diamonds are mined in Russia. There has been concentration of diamond trade in hubs like Antwerp, Belgium, Dubai and Hong Kong. Most of the world's production of rough diamonds-roughly 85%- are imported into India for cutting and polishing and are being re-exported to various destinations. With possibility of sanctions extending to an indefinite period looming large, Russia is looking for alternate strategies for roughing up the onslaught. One approach is to make India a trading hub in the same way as they do it in European countries.
There is a lot of merit in Russian thinking since it will cut down the killing made by the middle men sitting in European centers. It is a known fact a large number of diamond traders in these centers are Indians or people of Indian origin. By value adding diamonds in India and re-exporting them to various destinations they avail a number of facilities. On the top of it, the skilled and cheap labor in India add to their profit.
Importantly, both Putin and Prime Minister Narendra Modi are attending the World Diamond Conference, which will be held in Delhi next week.At the meeting Alrosa, a group of Russian companies engaged in diamond trade is expected to enter into long term contracts with Indian traders. If the deals go through, India will be able to import directly diamonds from Russia, without the medium of middlemen. That will cut the cost of imports considerably. In the long run, this development will have greater ramifications for the diamond trade. The Indian or people of Indian origin middlemen will migrate from European centers to India and set up their businesses from Indian shore denying these countries the revenue they earned from diamond trade. Second, India will gradually export the diamonds to the end destinations bringing up a lot of foreign exchange resources into India.
But these are propositions easier said than done. Some of the world's known companies in diamonds like De Beers, Rio Tinto etc. have a vested interest in diamond trade. They have established trade routes, which will be impossible to penetrate. In their scheme of things, Europe can be the trading route and India can be the traditional hub for low end cutting and polishing. They are supposed to put a lot of pressure on Putin administration and the western countries not to bring diamonds into the sanction's purview.
The other eventuality is the length of sanction period itself. Steadily declining oil prices is casting a shadow on oil producing non - OPEC countries like Venezuela, Iran, Iraq etc. along with Russia. How long the Russian Federation will withstand the onslaught is a trillion dollar question. Once the sanctions are lifted, the trade route will be restored.
