Beyond defence & oil, PM Modi & Putin build ‘co-production model’ as future of economic ties

For several decades, the India–Russia relationship was defined by India’s defence and energy imports. That has begun to change as the two countries have zeroed in on a ‘co-production model’ as the future of economic ties.

Trade outside the defence sector —which was always a one-sided relationship— remained minuscule. That changed in 2022 when India started buying discounted Russian oil. But this made the relationship even more lopsided: India’s imports rose to around $60-63 billion out of total trade of about $68 billion in 2024–25, with crude oil accounting for roughly 90 per cent of imports.

Having realised that trade would remain unequal under conventional methods, India and Russia adopted the co-production model to create a mutually beneficial arrangement, according to people familiar with the matter.

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Under this model, India and Russia have envisioned joint manufacturing of export-oriented goods, bringing fresh investment into India, enabling technology transfer, conducting joint research and development, and generating revenue streams for both countries.

The groundwork has already been laid. In October, Hindustan Aeronautics Limited (HAL) and Russia’s United Aircraft Corporation (UAC) signed an agreement to manufacture SJ-100 civilian passenger aircraft in India. For context, UAC is the aerospace giant behind Sukhoi fighter jets.

How the co-production model works

The India-Russia co-production approach has dual objectives of bridging the trade deficit and creating joint ventures that address critical gaps in both nations.

For example, India and Russia have discussed India-operated seed oil plants in Russia’s Far East by using India’s workforce and Russia’s sunflower and canola cultivation, a person aware of the matter told Firstpost.

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The person said, “India often faces cooking oil scarcity and Russia has plenty of unused production capacity. If Indian investments and workers set up seed oil cultivation and processing facilities, it would be a win-win arrangement as India would get a new steady source of supply and Russia would get investments.”

A second person added that only the co-production model can bridge India’s trade deficit as Indian exports to Russia have little scope to grow.

Traditionally, pharmaceuticals and machinery dominated Indian exports to Russia, but these have already peaked over the years.

“There are two more barriers to Indian exports to Russia. Firstly, Russian consumers prefer European-style goods from cars to clothes. Secondly, even if Indian exporters were to produce as per Russian taste, Indian goods will never outcompete cheaper Chinese goods that have flooded Russia,” the person told Firstpost.

Brahmos laid the groundwork

While the co-production model sounds new, its roots go back to the 1990s when India and Russia collaborated on the Brahmos missile.

In 1998, India’s Defence Research and Development Organisation (DRDO) and Russia’s NPO Mashinostroyenia set up Brahmos Aerospace with 50.5 per cent Indian and 49.5 per cent Russian ownership.

Decades later, Brahmos has not only entered service with India but also become an exportable product. The Philippines has bought Brahmos missiles and a deal with Indonesia is nearing conclusion. Talks with Malaysia and Vietnam are also in advanced stages.

Such a model has now been extended to the civilian domain with the HAL–UAC deal, according to Indrani Talukdar, Fellow at Chintan Research Foundation’s Centre for Geopolitics and Strategic Studies.

“To a large extent, the India-Russia relationship was defined by one-way defence deals, but the Brahmos joint venture has shown that India and Russia can transform the traditional buyer-seller relationship into one of co-production and co-development,” said Talukdar.

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Talukdar told Firstpost that even the energy relationship since 2022 has not been as one-sided as commentators claim.

“In the energy sector, it might seem that Russia is exporting oil to India and hence it is one-sided. But it is the other way round. As the Russian economy has largely been sanctioned in the West, it is equally important for Russia to have partners other than China, and India has come as a rescuer,” Talukdar said.

A two-way, win-win arrangement

The co-production model is a win-win arrangement with projects planned in both India and Russia, Firstpost has learnt.

In Russia, particularly in the vast and sparsely populated Far East, India-led projects have been discussed to utilise India’s workforce and Russia’s natural resources from oilseeds to critical and rare earth metals and its arable land, according to people familiar with the matter.

In India, projects under discussion involve technology transfer to make export-oriented products such as aircraft.

While specifics remain undisclosed, a likely structure would see costs and profits shared in a win-win arrangement, according to Ram Singh, a professor of international trade at the Indian Institute of Foreign Trade (IIFT).

Singh explained, “For any procurement, India could make 50 per cent payment in cash and invest the rest in a joint venture in India where Russia would transfer technology or contribute in other ways. Then, once production and exports start, both India and Russia could share the revenue in a pre-arranged division. After the break-even, profits could fuel other joint ventures.”

Singh cited the HAL–UAC deal as an example. Under this arrangement, HAL will build UAC’s SJ-100 twin-engine, narrow-body aircraft in India, which usually carry up to 100 passengers.

“While Airbus and Boeing dominate international travel, domestic travel between tier-two cities in India and abroad depends on smaller planes. The UAC aircraft that carries up to 100 people is ideal for such domestic flights. Indian airlines and even foreign airlines are ready customers for planes manufactured under the HAL-UAC tie-up,” said Singh.

Another area of convergence is India’s vast workforce and Russia’s shortage of workers due to an ageing population and the war in Ukraine, Singh added.

“Russia has shown interest in recruiting up to 1 million Indian workers in the coming years because of severe shortages in almost every sector. With an ageing population, Indian nurses and healthcare professionals are a critical cohort that Russians are considering recruiting. Other sectors likely to attract Indian workers are agriculture, food processing, construction and logistics,” Singh said.