Steps such as increasing exports, making local currency trading workable and a free trade agreement with the Eurasian Economic Union will help boost trade between India and Russia, think tank GTRI said on Thursday.

India should not worry over the trade deficit, as it is getting crude petroleum oil at cheaper than market rates from Russia and it is also cutting India's overall oil import bill, the Global Trade Research Initiative (GTRI) said.

Since the Ukraine war began in February 2022 and the US imposed sanctions on Russia, the trade relationship between India and Russia has shifted significantly.

There has been a sharp increase in imports from Russia, resulting in a notable trade imbalance.

Exports during the financial year 2020-21 and 2023-24 grew by 59 per cent, while imports surged by about 8,300 per cent, the report said, adding the trade deficit rose from USD 2.8 billion before the war in 2020-21 to USD 57.2 billion at present.

It said that the import surge is solely due to India's strategic procurement of crude oil from Russia influenced by favourable trade terms and Russia's need to find new markets amidst Western sanctions.

During Prime Minister Narendra Modi's Russia visit on July 8-9, India and Russia have set an ambitious bilateral trade target of USD 100 billion by 2030.

With current bilateral trade at USD 65.7 billion in 2023-24, the target seems achievable, GTRI Founder Ajay Srivastava said.

In 2023-24, India's exports to Russia were 4.3 billion, while imports driven by crude oil stood at USD 61.4 billion.

Share of crude oil and petroleum products in imports was 88 per cent.

India exports a diverse range of products to Russia including smartphones, shrimp, medicine, meat, tiles, coffee, parts of airplanes and helicopters, chemicals, computers, and fruits.

"India has competitive advantage in these products and hence the potential to export more to Russia. India should prepare a product-level strategy to promote exports," Srivastava said.

On local currency trade, the report said that trade cannot be settled in rupee due to limited international use of the Indian rupee and Russia's reluctance to accumulate it beyond a limit.

After the Ukraine war, the US put sanctions on Russia, not allowing it to use SWIFT (Society for Worldwide Interbank Financial Telecommunication) pipeline for dollar transactions.

The key question for India is finding the best way to pay Russia the amount equal to USD 60 billion in trade deficit.

"Local currency trading would be the best solution. To facilitate this, India needs to establish a transparent and open currency exchange. This exchange would provide clear, market-determined exchange rates between local currencies like Indian rupee and other currencies such as the Russian rouble, Malaysian ringgit, Thai baht, or Chinese yuan," it said.

It added that this would not only give banks a reliable reference for issuing letters of credit but also help businesses understand currency volatility better.

"Countries with currency surpluses, like Russia with its Indian rupee surplus from oil exports to India, could exchange their surplus for other currencies more efficiently in such a multi-currency exchange platform," it said.

It also suggested making the International North-South Transport Corridor (INSTC) functional.

The INSTC is a 7,200-kilometer multi-modal route linking India with Iran, Azerbaijan, Russia, Central Asia, and Europe.

"When functional, it would reduce transit time between India and western Russian ports from 45 to 25 days and cut freight costs by 30 per cent compared to the Suez Canal route. INSTC, despite these advantages, has limited use due to underinvestment in infrastructure," it said.

The frequent loading and unloading of cargo along the INSTC and the involvement of sanctioned Iran also pose logistical challenges. Chabahar is a key part of this corridor.

India is negotiating the 'India-Eurasian Economic Union (EAEU) Trade Agreement" with Russia, Kazakhstan, Kyrgyzstan, Armenia, and Belarus. Formal talks for the agreement have not yet started.