In Russia’s Far East Lies India’s New El Dorado

In his book Golden Rigma, Russian writer Vsevolod Sysoev said his country’s Far East had a ‘magnetic power of attraction’. He called it a place that ‘combined the beauty of Indian jungles and the severe majesty of the Siberian taiga’. Home to the Amur tiger, the world’s largest, the Russian Far East, which stretches from eastern Siberia to the strait that separates Russia from Alaska, has little else in common with India. The large region, which also shares land borders with Mongolia, North Korea and China and a maritime border with Japan, is about double the size of India, but has a population of just over 8 million.

For an untrained Indian eye, the sheer vastness of the land, virginity of its nature and the depopulated feel of its cities can cause a shock. Russians first began arriving to this northeastern corner of Asia in the middle of the 17th century. They began establishing significant settlements and cities by the 19th century after defeating the Chinese who were looking to expand the frontiers of Manchuria. From explorers such as Vladimir Arsenyev, whose book Dersu Uzala was adapted into an Oscar-winning film of the same name by Japanese auteur Akira Kurosawa, to playwright Anton Chekhov, who conducted a medical expedition to the Sakhalin Island, the Russian Far East has evoked romance, mystery and disdain in the country’s popular imagination.

Cities like Vladivostok, where Narendra Modi will visit in the first week of September, and Khabarovsk display fine architecture designed by the 19th century intelligentsia, who believed in creating classical European cities in Asia. These parts of Russia have always been contested by the powers of East Asia. While Russia regularly inflicted heavy wounds on China, it lost half of Sakhalin after the Russo-Japanese War of 1904-1905 (Moscow regained lost territories from Tokyo at the closing stages of the Second World War).

Parts of the Russian Far East actually broke away from Moscow following the Bolshevik Revolution, forming the Far Eastern Republic, which survived for just two and a half years. The region came back under Moscow’s total control in 1922.

 Immigration, emigration and the China factor

Post-World War 2, Soviet authorities encouraged skilled professionals and their families to move to the Russian Far East. Life was highly subsidised (even by Soviet socialist standards) in these parts and salaries were higher than in most of the European areas of the country. Before the skilled were encouraged to move there, many dissidents, political prisoners and criminals were sent to the kind of gulags described by Alexandr Solzhenitsyn.

‘Stability’ and ‘security’ were the key words when it came to describing the Russian Far East in the Soviet period. Places like Vladivostok, Kamchatka and Sakhalin were closed off to foreigners and even Soviet citizens needed special permits to visit them. Think of a more stringent version of the Inner Line permit India has for its northeastern states.

 

In the heyday of Indo-Soviet bonhomie, less than a handful of the seniormost Indian diplomats had a chance to visit Vladivostok. This privilege was also extended to some Indian naval ships.  It was from Vladivostok that the sailors of the Soviet Pacific Fleet were told to be ready to sail to the Bay of Bengal to assist India in the wake of a potential attack from the US Seventh Fleet in the 1971 Bangladesh War.

Once the Soviet Union collapsed, subsidies vanished and all of a sudden, the factors that made life difficult in the Russian Far East such as isolation and extremely cold weather (even by Russian standards) led to hundreds of thousands moving closer to Moscow.

Massive investments from the Russian federal government, offers of land and an oil and gas boom have managed to partially check net emigration from the area but the Russian Far East remains one of the most sparsely populated areas in the world, despite being at the crossroads of Eurasia and the Pacific Rim.

Although there are many public displays of camaraderie between Moscow and Beijing, those who choose to make the Russian Far East home still harbour fears of a Chinese demographic invasion. The areas just south of the Amur River (China’s Heilongjiang province) are bustling and hold more than 30 million people. While China and Russia have signed a border agreement, where the former has renounced old claims on vast swathes of Russian territory, some in Moscow secretly share the same apprehensions as citizens in the border areas. Of course, most Chinese that one sees in the streets of Khabarovsk or Vladivostok these days are tourists making good use of exchange rates. The Russian rouble fell from around 33 to a US dollar to 66-70 in the wake of Western sanctions in 2014. There’s also a large number of group tourists from China who find it cheaper to visit a casino in areas close to the Russia border than Macau.

Early Indian presence and economic revival

 India was the first country to open a consulate in Vladivostok, setting up shop in 1992, almost immediately after the collapse of the Soviet Union. When another closed part of the Russian Far East, the Sakhalin Island was opened to outsiders and investment, ONGC’s overseas wing bought a 20 per cent stake in the $10-billion Sakhalin-1 oil and gas project in 2001. Although the deal was criticised by some sections of the Indian media when it was first announced, it has since proven to be one of the country’s best foreign investments. In Sakhalin, ONGC partners with Exxon, Russian-state owned Rosneft and a Japanese consortium. Sakhalin-1 installations produce 250,000 barrels of oil per day, while its gas reserves are estimated at 17.1 trillion cubic ft. 

Despite making early inroads in the region, little investment came from India to the Russian Far East for over a decade after Sakhalin-1. During this period, Russian President Vladimir Putin made the transformation of Vladivostok into a major economic centre for the Asia-Pacific one of his economic priorities. In 2012, the city hosted the Asia-Pacific Economic Cooperation (APEC) Summit. For the summit, Vladivostok witnessed a complete makeover: old buildings and the city centre were tastefully restored, the airport was modernised, and two new cable-stayed bridges over the sea (that look like cousins of the Bandra-Worli sea link) became the new symbols of the city.

In 2015 Russia announced plans to make Vladivostok a free port and offered a slew of incentives for investors in the free port area, as well as for the setting up of so-called Territories of Accelerated Development. Incentives included tax breaks, easier work permits and access to land. Moscow has had to reassure residents of the Russian Far East that there would not be permanent Chinese migration to the region via projects operated by Chinese companies. Besides China, countries like Thailand, Japan and Australia are among the major investors in the region.

Eastern Economic Forum

One of the key announcements at the India-Russia annual summit in Delhi in 2018 was that Narendra Modi agreed to attend the 2019 Eastern Economic Forum (EEF) in Vladivostok. India will be the guest of honour at the forum during September 4th-6th.

The Forum was established in 2015 by Vladimir Putin as a platform for the Russian Far East to integrate with the economies of the Indo-Pacific. 

Ever since ONGC made its investment in Sakhalin, Russia has looked to India Inc’s participation in the development story of its Far East. This was emphasised by Russian Deputy Prime Minister and Presidential Envoy to the Russian Far East Yury Trutnev, who was in Mumbai in June 2019. At an event held at a five-star hotel that was attended by many of Mumbai’s business bigwigs, Trutnev highlighted areas of cooperation between India and the region.“We can expand our cooperation in the extractive resources industries, diamond processing, timber, agriculture, fishing and infrastructure development,” he said.

The Confederation of Indian Industry sent a delegation to Vladivostok in May 2019. “We see potential for collaboration in industries such as coal, diamond cutting and pharmaceuticals,” its Director General Chandrajit Banerjee said at the June event in Mumbai. 

Indian citizens can easily visit the Russian Far East thanks to a free e-visa system that has been in place for over two years. Enterprising businessmen have already explored the potential of the area.The Russian government expects Indian investment in the Russian Far East to the tune of 53 billion roubles (about $800 million).

Large and medium-sized Indian companies have announced investments in the region over the last two years.

In December 2017, Tata Power said it won a $4.7-million mining licence for a thermal coal mine in the Kamchatka peninsula. The Krutogorovsky mine is estimated to have 380 million tonnes of reserves.

After Vladimir Putin addressed the World Diamond Conference in Delhi in December 2014, Indian diamond processors began to show a more active interest in the Russian Far East. In 2017, Putin inaugurated the KGK Group’s diamond-cutting and polishing factory. The Hong Kong-headquartered company, which is run by the Kothari family, is investing $48.6 million in the region. The factory, which employs 400 people, has the capacity to manufacture 150,000 carats of diamonds every year. The KGK group has signed a long-term contract with Russian giant Alrosa for the supply of rough diamonds.

Another Indian company that took advantage of the sops offered by the Vladivostok free port was M Suresh & Co, which is also setting up a diamond-cutting and polishing factory. The company has said it would invest about $4.7 million in the region. With easier access to work and residence permits, Indian diamond-processing firms have taken some personnel from India.

Several large-scale investment deals could be announced when Modi visits Vladivostok. In August, Indian Commerce and Industry Minister Piyush Goyal led a delegation of chief ministers from Uttar Pradesh, Goa, Haryana and Gujarat to Vladivostok.“India is looking to gain from the investment-friendly Russian stance in the natural resource-rich region, which includes significant incentives and tax breaks allowing Indian investments and labour for projects,” the Ministry of Commerce and Industry said in a statement. 

Challenges loom

Some Russian analysts have raised questions about the long-term economic feasibility of the Territories of Accelerated Development and the Vladivostok free port.  The Russian Far East would have to compete with Chinese special export zones and ports like Busan (South Korea), Dalian (China) and Nagoya (Japan).

The 2014 bill that established the Vladivostok Free Port has a provision for early ‘disestablishment’ of the free port if there is a need to ‘to protect the life or health of citizens, cultural heritage, environmental protection, to ensure national defence and state security’. Analysts, however, believe that Moscow is unlikely to irk international investors by making any rash decisions, especially given the deteoriorating relations between Russia and the West.

Statements from the Indian Government and media suggest that a major takeaway from investing in the Russian Far East is greater labour market access for Indian citizens. Nativist sentiment is not high in this part of Russia, except when it comes to age-old fears of a Chinese demographic invasion. Indians are still seen as exotic in a region that is ethnically homogenous for the most part.

We are also unlikely to see the kind of numbers of migrants from India that could possibly unsettle the locals. However, the hospitality of Russians may not make up for the inhospitable climate of the Russian Far East, which has a large amount of permafrost regions and winters that are far more severe than European Russia. Even a city like Vladivostok that does not receive much snowfall has a chilly ocean breeze that can feel paralysing. One of the main reasons that oil and gas projects in Sakhalin faced delays was the fact that labourers from countries like the Philippines could not work in the winters. 

Geographic isolation could also be a strong deterrent for people looking to move to the region. Vladivostok is an eight-hour flight from Moscow. From some parts of India, an easier way to access the region may be via Hong Kong or Seoul.

Indian employers may also find it tough to pay reasonable salaries to people they bring from India. Living costs are far higher in the Russian Far East than in most other parts of the country. Businessmen that have opened up Indian restaurants in Sakhalin and Vladivostok bring cooks and other staff from India and have found ways to cut corners and pay decent salaries to their employees. This includes housing a few people in a common flat and taking care of their food requirements, while sending most of their salary to an account in India. Similar forms of ‘jugaad’ may not work in other industries, especially in areas that need highly skilled professionals.

If these and other challenges can be overcome then India Inc’s partnership with the Russian Far East may just be the catalyst that helps boost bilateral trade between the strategic partners. It would also help Russia transform its farthest outpost into a major hub connecting Europe with the Pacific Rim.

 

diplomacyeconomic cooperationIndiaNarendra ModiRussia